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. - Heidelberg : Springer, ISSN 2235-6282. - Vol. 145.2009, 1, p. 37-60
Publisher:	Heidelberg : Springer
Subject:	policy analysis \| forecasting \| rational expectations \| error correction

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Type of publication:	Article
Type of publication (narrower categories):	Article
Language:	English
Other identifiers:	10.1007/BF03399274 [DOI] hdl:10419/185908 [Handle] RePEc:ses:arsjes:2009-I-2 [RePEc]
Classification:	C51 - Model Construction and Estimation ; E37 - Forecasting and Simulation ; E47 - Forecasting and Simulation ; C32 - Time-Series Models
Source:	EconStor

Persistent link: https://www.econbiz.de/10011933191