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Interpretation of Cointegrating Coefficients in the Cointegrated Vector Autoregressive Model

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  • Søren Johansen

Abstract

Regression coefficients are interpreted by a counterfactual experiment. For simultaneous equations this experiment can be implemented if the coefficients are identified, and throws some light on the role of instruments and the method of indirect least squares. This paper discusses another counterfactual experiment in the vector autoregressive model in order to interpret the coefficients of an identified cointegrating relation. The dynamics of the model is used to implement a long‐run change by changing the current values. The counterfactual experiment can be conducted precisely when the cointegrating relation is identified.

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  • Søren Johansen, 2005. "Interpretation of Cointegrating Coefficients in the Cointegrated Vector Autoregressive Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(1), pages 93-104, February.
    • Handle: RePEc:bla:obuest:v:67:y:2005:i:1:p:93-104
    DOI: 10.1111/j.1468-0084.2005.00111.x
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    1. Hoover,Kevin D., 2001. "Causality in Macroeconomics," Cambridge Books, Cambridge University Press, number 9780521002882, September.
    2. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March.
    3. Hansen, Peter Reinhard & Johansen, Soren, 1998. "Workbook on Cointegration," OUP Catalogue, Oxford University Press, number 9780198776079.
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