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Long-Run Structural Modelling

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Author Info
M. Hashem Pesaran
Yongcheol Shin

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Abstract

The paper develops a general framework for identification, estimation, and hypothesis testing in cointegrated systems when the cointegrating coefficients are subject to (possibly) non-linear and cross-equation restrictions, obtained from economic theory or other relevant a priori information. It provides a proof of the consistency of the quasi maximum likelihood estimators (QMLE), establishes the relative rates of convergence of the QMLE of the short-run and the long-run parameters, and derives their asymptotic distributions; thus generalizing the results already available in the literature for the linear case. The paper also develops tests of the over-identifying (possibly) non-linear restrictions on the cointegrating vectors. The estimation and hypothesis testing procedures are applied to an Almost Ideal Demand System estimated on U.K. quarterly observations. Unlike many other studies of consumer demand this application does not treat relative prices and real per capita expenditures as exogenously given.

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File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1081/ETC-120008724&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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Publisher Info
Article provided by Taylor and Francis Journals in its journal Econometric Reviews.

Volume (Year): 21 (2002)
Issue (Month): 1 ()
Pages: 49-87
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Handle: RePEc:taf:emetrv:v:21:y:2002:i:1:p:49-87

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Related research
Keywords: Cointegration; Identification; QMLE; Consistency; Asymptotic distribution; testing non-linear restrictions; Almost Ideal Demand Systems; JEL Classifications: C1; C3; D1; E1;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244. [Downloadable!] (restricted)
  2. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
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  3. Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September. [Downloadable!] (restricted)
  4. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August. [Downloadable!] (restricted)
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  5. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
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  6. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  7. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March. [Downloadable!] (restricted)
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  8. Pashardes, Panos, 1993. "Bias in Estimating the Almost Ideal Demand System with the Stone Index Approximation," Economic Journal, Royal Economic Society, vol. 103(419), pages 908-15, July. [Downloadable!] (restricted)
  9. Pesaran, M.H., 1996. "The Role of Economic Theory in Modelling the Long Run," Cambridge Working Papers in Economics 9612, Faculty of Economics, University of Cambridge.
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  10. Breusch, Trevor S, 1986. "Hypothesis Testing in Unidentified Models," Review of Economic Studies, Blackwell Publishing, vol. 53(4), pages 635-51, August. [Downloadable!] (restricted)
  11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  12. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June. [Downloadable!] (restricted)
  13. Peter C.B. Phillips, 1993. "Fully Modified Least Squares and Vector Autoregression," Cowles Foundation Discussion Papers 1047, Cowles Foundation, Yale University. [Downloadable!]
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  14. Donald W.K. Andrews, 1986. "Consistency in Nonlinear Econometric Models: A Generic Uniform Law of Large Numbers," Cowles Foundation Discussion Papers 790, Cowles Foundation, Yale University. [Downloadable!]
  15. Donald W.K. Andrews, 1990. "Generic Uniform Convergence," Cowles Foundation Discussion Papers 940, Cowles Foundation, Yale University. [Downloadable!]
  16. Chambers, Marcus J & Nowman, K Ben, 1997. "Forecasting with the Almost Ideal Demand System: Evidence from Some Alternative Dynamic Specifications," Applied Economics, Taylor and Francis Journals, vol. 29(7), pages 935-43, July. [Downloadable!] (restricted)
  17. Anderson, Gordon & Blundell, Richard, 1983. "Testing Restrictions in a Flexible Dynamic Demand System: An Application to Consumers' Expenditure in Canada," Review of Economic Studies, Blackwell Publishing, vol. 50(3), pages 397-410, July. [Downloadable!] (restricted)
  18. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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