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Bayesian approaches to cointegration

Koop, G.M. and Strachan, Rodney W. and Van Dijk, Herman and Villani, Mattias (2006) Bayesian approaches to cointegration. In: The Palgrave Handbook of Theoretical Econometrics. Palgrave Macmillan, pp. 871-898. ISBN 1403941556

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Abstract

The degree of empirical support of a priori plausible structures on the cointegration vectors has a central role in the analysis of cointegration. Villani (2000) and Strachan and van Dijk (2003) have recently proposed finite sample Bayesian procedures to calculate the posterior probability of restrictions on the cointegration space, using the existence of a uniform prior distribution on the cointegration space as the key ingredient. The current paper extends this approach to the empirically important case with different restrictions on the individual cointegration vectors. Prior distributions are proposed and posterior simulation algorithms are developed. Consumers' expenditure data for the US is used to illustrate the robustness of the results to variations in the prior. A simulation study shows that the Bayesian approach performs remarkably well in comparison to other more established methods for testing restrictions on the cointegration vectors.

Item type: Book Section
ID code: 7750
Notes: Working paper version - Department of Economics, University of Leicester: Discussion Papers in Economics number 04/27
Keywords: time-series analysis, cross-sectional analysis, panel data analysis, exchange rates, Economic Theory, Statistics
Subjects: Social Sciences > Economic Theory
Social Sciences > Statistics
Department: Strathclyde Business School > Economics
Faculty of Humanities and Social Sciences (HaSS) > School of Social Work and Social Policy > Sociology
Depositing user: Strathprints Administrator
Date Deposited: 20 Mar 2009 14:40
Last modified: 26 Mar 2015 17:11
URI: http://strathprints.strath.ac.uk/id/eprint/7750

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