Cointegration Implications of Linear Rational Expectation Models

28 Pages Posted: 12 Mar 2008

See all articles by Mikael Juselius

Mikael Juselius

Bank for International Settlements (BIS) - Monetary and Economic Department; Hanken School of Economics - Department of Economics; University of Helsinki - Department of Political and Economic Studies

Date Written: March 2008

Abstract

This paper derives the cointegration spaces that are implied by linear rational expectations models when data are I(1). The cointegration implications are easy to calculate and can be readily applied to test if the models are consistent with the long-run properties of the data. However, the restrictions on cointegration only form a subset of all the cross-equation restrictions that the models place on data. The approach is particularly useful in separating potentially data-consistent models from the remaining models within a large model family. Moreover, the approach provides useful information on the empirical shock structure of the data.

Keywords: rational expectations, cointegration

JEL Classification: C52

Suggested Citation

Juselius, Mikael, Cointegration Implications of Linear Rational Expectation Models (March 2008). Bank of Finland Research Discussion Paper No. 6/2008, Available at SSRN: https://ssrn.com/abstract=1105322 or http://dx.doi.org/10.2139/ssrn.1105322

Mikael Juselius (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Hanken School of Economics - Department of Economics ( email )

PO Box 479
FI-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

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