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Bridging Economic Theory Models and the Cointegrated Vector Autoregressive Model

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  • Møller, Niels Framroze

Abstract

Examples of simple economic theory models are analyzed as restrictions on the Cointegrated VAR (CVAR). This establishes a correspondence between basic economic concepts and the econometric concepts of the CVAR: The economic relations correspond to cointegrating vectors and exogeneity in the economic model implies the econometric concept of strong exogeneity for â. The economic equilibrium corresponds to the so-called long-run value (Johansen 2005), the comparative statics are captured by the long-run impact matrix, C; and the exogenous variables are the common trends. Also, the adjustment parameters of the CVAR are shown to be interpretable in terms of expectations formation, market clearing, nominal rigidities, etc. The general-partial equilibrium distinction is also discussed.

Suggested Citation

  • Møller, Niels Framroze, 2008. "Bridging Economic Theory Models and the Cointegrated Vector Autoregressive Model," Economics Discussion Papers 2008-21, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwedp:7283
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    Cited by:

    1. Katarina Juselius, 2017. "Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge," Econometrics, MDPI, vol. 5(3), pages 1-20, July.
    2. Maja Pedersen & Claudia Riani & Paul Sharp, 2021. "Malthus in preindustrial Northern Italy?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 34(3), pages 1003-1026, July.
    3. Katarina Juselius, 2009. "Time to reject the privileging of economic theory over empirical evidence? A Reply to Lawson (2009)," Discussion Papers 09-16, University of Copenhagen. Department of Economics.
    4. Niels Framroze Møller & Paul Sharp, 2008. "Malthus in Cointegration Space: A new look at living standards and population in pre-industrial England," Discussion Papers 08-16, University of Copenhagen. Department of Economics.
    5. Bjerregaard, Casper & Møller, Niels Framroze, 2019. "The impact of EU's energy labeling policy: An econometric analysis of increased transparency in the market for cold appliances in Denmark," Energy Policy, Elsevier, vol. 128(C), pages 891-899.
    6. Marc P. B. Klemp, 2012. "Prices, wages and fertility in pre-industrial England," Cliometrica, Journal of Historical Economics and Econometric History, Association Française de Cliométrie (AFC), vol. 6(1), pages 63-77, January.
    7. Niels Møller & Paul Sharp, 2014. "Malthus in cointegration space: evidence of a post-Malthusian pre-industrial England," Journal of Economic Growth, Springer, vol. 19(1), pages 105-140, March.
    8. Juselius, Mikael, 2008. "Testing the New Keynesian Model on U.S. and Euro Area Data," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-26.
    9. Ordóñez, Javier & Jusélius, Katarina, 2009. "Balassa-Samuelson and Wage, Price and Unemployment Dynamics in the Spanish Transition to EMU Membership," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-30.
    10. Tommy E. Murphy, 2010. "Persistence of Malthus or Persistence in Malthus? Mortality, Income, and Marriage in the French Fertility Decline of the Long Nineteenth Century?," Working Papers 363, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Møller, Niels Framroze, 2015. "Energy Demand, Substitution and a Potential for Electrification: An econometric analysis of eight Danish subsectors," MPRA Paper 69931, University Library of Munich, Germany.
    12. Møller, Niels Framroze, 2017. "Energy demand, substitution and environmental taxation: An econometric analysis of eight subsectors of the Danish economy," Energy Economics, Elsevier, vol. 61(C), pages 97-109.

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    More about this item

    Keywords

    Cointegrated VAR; unit root approximation; economic theory models; expectations; general equilibrium; DSGE models;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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