Biased Estimation in a Simple Extension of a Standard Error Correction Model

This paper considers an expectations augmented version of the Engle and Granger (1987) error correction model and shows that standard inference about the adjustment coefficients can be severely biased. This has implications for long–run causality and impulse–response analysis in particular. However, a sometimes simple remedy exists which only requires some additional regressions. The results are illustrated using U.S., German and Swiss data.

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Year of publication:	2009
Authors:	Müller-Kademann, Christian
Published in:	Swiss Journal of Economics and Statistics (SJES). - Schweizerische Gesellschaft für Volkswirtschaft und Statistik / Société Suisse d"Économie et de Statistique - SGVS/SSES, ISSN 0303-9692. - Vol. 145.2009, I, p. 37-60
Publisher:	Schweizerische Gesellschaft für Volkswirtschaft und Statistik / Société Suisse d"Économie et de Statistique - SGVS/SSES
Subject:	policy analysis \| forecasting \| rational expectations \| error correction

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Extent:	application/pdf
Type of publication:	Article
Classification:	C51 - Model Construction and Estimation ; E37 - Forecasting and Simulation ; E47 - Forecasting and Simulation ; C32 - Time-Series Models
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005077505