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Stochastic search variable selection in vector error correction models with an application to a model of the UK macroeconomy

Jochmann, Markus and Koop, Gary and Leon-Gonzalez, Roberto and Strachan, Rodney W. (2012) Stochastic search variable selection in vector error correction models with an application to a model of the UK macroeconomy. Journal of Applied Econometrics. ISSN 0883-7252

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Abstract

This paper develops methods for stochastic search variable selection (currently popular with regression and vector autoregressive models) for vector error correction models where there are many possible restrictions on the cointegration space. We show how this allows the researcher to begin with a single unrestricted model and either do model selection or model averaging in an automatic and computationally efficient manner. We apply our methods to a large UK macroeconomic model.