Using recently developed statistical tools for analyzing cointegrated I(2) data, this article models money, income, prices, and interest rates in Denmark. The final model describes the dynamic adjustment to short-run changes of the process, to deviations from long-run steady states, and to...

The paper discusses the dynamics of inflation and money growth in a stochastic framework, allowing for double unit roots in the nominal variables. It gives some examples of typical I(2) ’symptoms’ in empirical I(1) models and provides both a nontechnical and a technical discussion of the...

The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in...

The multivariate cointegration model in the autoregressive and the moving average form is discussed in terms of long run relations and common trends driving the system. The basic results needed for the cointegration analysis of processes integrated of order 2 are reviewed, and the notion of weak...

The persistent movements away from long-run benchmark values in real exchange rates, dubbed the PPP puzzle, observed in many real exchange rates during periods of currency float have been subject to much empirical research without resolving the puzzle. The paper demonstrates how the cointegrated...

The paper discusses methodological questions related to econometric time-series modelling of I(2) data. Long-run and medium-run relationships between two general price indices, the US CPI and WPI and four commodity prices indices, the WBI, CRBI, GSCI, and ECI are investigated in a multivariate...

Based on a money market analysis the paper discusses possible pitfalls in acroeconomic inference related to inadequate stochastic model formulation. A number of questions related to concepts such as empirical and theoretical steady-states, speed of adjustment, feed-back and interaction effects,...

This paper examines the interrelations between purchasing power parity, uncovered interest parity, the term structure of interest rates and the Fisher real interest rate parity using cointegration analysis. Dynamic adjustment and feed-back effects are estimated jointly in a full system of...

Asset prices undergo long swings that revolve around benchmark levels. In currency markets, fluctuations involve real exchange rates that are highly persistent and that move in near-parallel fashion with nominal rates. The inability to explain these two regularities with one model has been...