Codependent VAR Models and the Pseudo-Structural Form


Trenkler, Carsten ; Weber, Enzo


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URL: https://ub-madoc.bib.uni-mannheim.de/31690
URN: urn:nbn:de:bsz:180-madoc-316904
Document Type: Working paper
Year of publication: 2012
The title of a journal, publication series: Working Paper Series
Volume: 12-10
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Empirische Wirtschaftsforschung (Trenkler)
MADOC publication series: Department of Economics > Working Paper Series
Subject: 330 Economics
Classification: JEL: C32,
Keywords (English): Codependence , VAR , cointegration , pseudo-structural form , serial correlation common features
Abstract: This paper investigates whether codependence restrictions can be uniquely imposed on VAR and VEC models via the so-called pseudo-structural form used in the literature. Codependence of order q is given if a linear combination of autocorrelated variables eliminates the serial correlation after q lags. Importantly, maximum likelihood estimation and likelihood ratio testing are only possible if the codependence restrictions can be uniquely imposed. Applying the pseudostructural form, our study reveals that this is not generally the case, but that unique imposition is guaranteed in several important special cases. Moreover, we discuss further issues, in particular upper bounds for the codependence order.

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