Short‐Run Dynamics in Cointegrated Systems

Proietti, Tommaso

doi:10.1111/1468-0084.00073

Cited by 101 publications

(80 citation statements)

References 12 publications

(14 reference statements)

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“…An appealing alternative is the BeveridgeNelson-Stock-Watson [BNSW] decomposition that is valid under less restrictive conditions. [21,22,15] As shown by Proietti, [22] Hecq et al, [15] this decomposition takes the form (11) with…”

Section: Separation and P-t Decompositionmentioning

confidence: 84%

Separation, Weak Exogeneity, and P-T Decomposition in Cointegrated Var Systems With Common Features

Hecq

Palm

Urbain

2002

Econometric Reviews

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The aim of this paper is to study the concept of separability in multiple nonstationary time series displaying both common stochastic trends and common stochastic cycles. When modeling the dynamics of multiple time series for a panel of several entities such as countries, sectors, firms, imposing some form of separability and commonalities is often required to restrict the dimension of the parameter space. For this purpose we introduce the concept of common feature separation and investigate the relationships between separation in cointegration and separation in serial correlation common features. Loosely speaking we investigate whether a set of time series can be partitioned into subsets such that there are serial correlation common features within the sub-groups only. The paper investigates three issues. First, it provides conditions for separating joint cointegrating vectors into marginal cointegrating vectors as well as separating joint short-term dynamics into marginal short-term dynamics. Second, conditions for making permanenttransitory decompositions based on marginal systems are given. Third, issues of weak exogeneity are considered. Likelihood ratio type tests for the different hypotheses under study are proposed. An empirical analysis of the link between economic fluctuations in the United States and Canada shows the practical relevance of the approach proposed in this paper.

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Section: Separation and P-t Decompositionmentioning

confidence: 84%

Separation, Weak Exogeneity, and P-T Decomposition in Cointegrated Var Systems With Common Features

Hecq

Palm

Urbain

2002

Econometric Reviews

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“…It is worth stressing that the latter set of variables may nonetheless include transitory dynamics; however, these fluctuations lie in the space spanned by α ⊥ and, thus, fail to possess the capacity to bring about equilibrium correction (Proietti, 1997). The fact that the speed of convergence via residential investment has slowed down since reunification does not affect the trend-cycle decomposition in a formal sense because neither α ⊥ nor B depend on α in this special case.…”

Section: A Trend-cycle Decomposition Of Residential Investmentmentioning

confidence: 97%

Trend and Cycle Features in German Residential Investment Before and After Reunification

Knetsch

2010

Housing Markets in Europe

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Real residential investment in Germany is found to be cointegrated with population, real national income per capita and real house prices. This evidence is consistent with a model where the trend in housing demand is determined by demographic factors and economic well-being to which supply adjusts so slowly that real house prices are affected persistently. Reunification seems to have induced two structural changes in the empirical housing market model. First, the speed of equilibrium adjustment via residential investment slowed down substantially and real house prices lost the capacity to contribute to the adjustment process. Second, the degree of persistence in the error correction term increased a lot. The changing features are key to explain significant differences in alternative trend-cycle decompositions of residential investment. Keywords:Residential investment, vector autoregression, trend-cycle decomposition, Germany.JEL classification: E22, C32. Non-technical summaryIn this paper, real residential investment in Germany over the last 35 years is modelled with a particular focus on the role of trend and cyclical factors. This task is complicated by the peculiarities of the German reunification because they have influenced housing market developments to a significant degree. In the early 1990s, the existing supply of dwellings in western Germany did not meet the demand for housing, which rose sharply especially as a result of immigration. Moreover, the residential stock in eastern Germany was run-down and had to be renovated. Dwellings construction expanded massively between 1991 and 1995. Having remained elevated until the year 2000, residential investment declined for a lenghty period which did not end until 2005 when it turned into a moderate cyclical recovery. The housing market was thus characterized by a boom-bust cycle in residential investment, while house prices changed only marginally in nominal terms and decreased fairly steadily in real terms. Real residential investment is modelled within a cointegrated vector autoregression together with population, real income per capita and real house prices. The cointegrating relation which is established between the four variables can be interpreted as a long-run equilibrium relationship on the housing market. The trend in housing demand is described by demographics and per-capita income. The adjustment of dwellings supply via residential investment is rather slow, implying that lasting tensions on the housing market are reflected in persistent house price movements.As the sample comprises data before and after the reunification, interesting comparisons can be made and changes in the model structure can be uncovered. The pronounced upand-down movement of residential investment after reunification is reflected in the long-run residuals of the cointegrating relation, as its time series is characterized by an increase in the degree of persistence since 1991. Furthermore, one can conclude that since 1991 house prices have contributed less than before ...

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“…Based on the popular view that the stochastic trend of an I(1) time series is a random walk, the processes t and t are, respectively, defined as the stochastic trends and cycles of variables y t . Proietti (1997) discusses in details the relations among the multivariate BN representation and other popular permanent-transitory decompositions.…”

Section: Alternative Notions Of Common Cyclical Featuresmentioning

confidence: 99%

A Unifying Framework for Analysing Common Cyclical Features in Cointegrated Time Series

Cubadda

2007

SSRN Journal

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A unifying framework in which the coexistence of differing forms of common cyclical features can be tested and imposed upon a cointegrated VAR model is provided. This is achieved by introducing a new notion of common cyclical features, described as the weak form of polynomial serial correlation, which encompasses most of the existing formulations. Statistical inference is based upon reduced-rank regression, and alternative forms of common cyclical features are detected through tests for over-identifying restrictions on the parameters of the new model. Some iterative estimation procedures are then proposed for simultaneously modelling various forms of common features. The concepts and methods of the paper are illustrated via an empirical investigation of the US business cycle indicators.

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Short‐Run Dynamics in Cointegrated Systems

Cited by 101 publications

References 12 publications

Separation, Weak Exogeneity, and P-T Decomposition in Cointegrated Var Systems With Common Features

Separation, Weak Exogeneity, and P-T Decomposition in Cointegrated Var Systems With Common Features

Trend and Cycle Features in German Residential Investment Before and After Reunification

A Unifying Framework for Analysing Common Cyclical Features in Cointegrated Time Series

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