Valid Bayesian Estimation of the Cointegrating Error Correction Model.

Two methods of identifying cointegrating vectors are commonly used: linear restrictions and the nonlinear method of Johansenos maximum likelihood procedure. That linear method can produce invalid estimates while the Johansen approach always produces valid estimates has been recognised in several recent articles. As all Bayesian studies to date have used linear restrictions, this article presents a Bayesian method for obtaining estimates of cointegrating vectors that will always be valid.