Publication: Estimation of common long-memory components in cointegrated systems
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Publication date
1995-01
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Tutors
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Publisher
American Statistical Association
Abstract
The analysis of cointegration in large systems requires a reduction of their dimensionality. To achieve this, an analysis proposes to obtain the integrated of order one - I(1) - factors in every subsystem and then analyze cointegration among them. A new way of estimating common long-memory components of a cointegrated system is proposed. The identification of these I(1) common factors is achieved by imposing that they be linear combinations of the original variables and that the error-correction terms do not cause the common factors at low frequencies. Estimation is done from a fully specified error-correction model, which makes it possible to test hypotheses on the common factors using standard chi-squared tests. Several empirical examples are presented to illustrate the procedure.
Description
Keywords
Common factors, Cointegration, Error-correction model, Permanent-transitory decomposition
Bibliographic citation
Journal of Business & Economic Statistics, January 1995, vol. 13, nº 1, p. 27-35