Bridging Economic Theory Models and the Cointegrated Vector Autoregressive Model

Niels Framroze Møller

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Examples of simple economic theory models are analyzed as restrictions on the Cointegrated VAR (CVAR). This establishes a correspondence between basic economic concepts and the econometric concepts of the CVAR: The economic relations correspond to cointegrating vectors and exogeneity in the economic model is related to econometric concepts of exogeneity. The economic equilibrium corresponds to the so-called long-run value (Johansen 2005), the long-run impact matrix, C; captures the comparative statics and the exogenous variables are the common trends. The adjustment parameters of the CVAR are related to expectations formation, market clearing, nominal rigidities, etc. Finally, the general-partial equilibrium distinction is analyzed.
Original languageEnglish
JournalEconomics: the Open Access, Open Assessment,E-journal
Number of pages29
Publication statusPublished - 2008
Externally publishedYes

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