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Bayesian Inference in Cointegrated I (2) Systems: a Generalisation of the Triangular Model

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posted on 11.05.2009, 15:32 by Rodney W. Strachan
This paper generalises the cointegrating model of Phillips (1991) to allow for I (0) , I (1) and I (2) processes. The model has a simple form that permits a wider range of I (2) processes than are usually considered, including a more flexible form of polynomial cointegration. Further, the specification relaxes restrictions identified by Phillips (1991) on the I (1) and I (2) cointegrating vectors and restrictions on how the stochastic trends enter the system. To date there has been little work on Bayesian I (2) analysis and so this paper attempts to address this gap in the literature. A method of Bayesian inference in potentially I (2) processes is presented with application to Australian money demand using a Jeffreys prior and a shrinkage prior.

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Publisher

Dept. of Economics, University of Leicester

Available date

11/05/2009

Publisher version

http://www.le.ac.uk/economics/research/discussion/papers2005.html

Book series

Discussion Papers in Economics;05/14

Language

en

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