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On the Shape of the Likelihood/Posterior in Cointegration Models (1994)

Kleibergen, Frank ; van Dijk, Herman K.

New York : Cambridge University Press

Econometric theory 10 (1994), S. 514-551

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ISSN: 0266-4666

Source: Cambridge Journals Digital Archives

Topics: Economics

Notes: A vector autoregressive (VAR) model is specified with equation system parameters, which directly reflect the possible cointegrating nature of the analyzed time series. By using a flat/diffuse prior, we show that the marginal posteriors of the parameters of interest (multipliers of the cointegrating vectors) may be nonintegrable and favor difference stationary models in an undesired way. To choose between stationary, cointegrated, and difference stationary models in a meaningful way, the Jeffreys prior principle is used. We investigate the sensitivity of the posterior results with respect to the construction of the Jeffreys prior. In this context, we also analyze the effect of fixed and stochastic initial values. The theoretical results are illustrated by using a VAR model for shortand long–term interest rates in the United States.

Type of Medium: Electronic Resource

URL: http://dx.doi.org/10.1017/S0266466600008653

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Oil Price Shocks and Long Run Price and Import Demand Behavior (1999)

Kleibergen, Frank ; van Dijk, Herman K. ; Urbain, Jean-Pierre

Springer

Annals of the Institute of Statistical Mathematics 51 (1999), S. 399-417

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ISSN: 1572-9052

Keywords: Cointegration ; weak exogeneity ; import demand ; oil price behaviour

Source: Springer Online Journal Archives 1860-2000

Topics: Mathematics

Notes: Abstract The effect which the oil price time series has on the long run properties of Vector AutoRegressive (VAR) models for price levels and import demand is investigated. As the oil price variable is assumed to be weakly exogenous for the long run parameters, a cointegration testing procedure allowing for weakly exogenous variables is developed using a LU decomposition of the long run multiplier matrix. The likelihood based cointegration test statistics, Wald, Likelihood Ratio and Lagrange Multiplier, are constructed and their limiting distributions derived. Using these tests, we find that incorporating the oil price in a model for the domestic or import price level of seven industrialized countries decreases the long run memory of the inflation rate. Second, we find that the results for import demand can be classified with respect to the oil importing or exporting status of the specific country. The result for Japan is typical as its import price is not influenced by GNP in the long run, which is the case for all other countries.