Econometric Methods for Modelling Systems With a Mixture of i(1) and i(0) Variables

Lance A. Fisher, Hyeon Seung Huh*, Adrian R. Pagan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)

Abstract

This paper considers structural models with both I(1) and I(0) variables. The structural shocks associated with either set of variables could be permanent or transitory. We classify the shocks as (P1,P0) and (T1,T0), where P/T distinguishes permanent/transitory, while 1/0 means they are attached to structural equations with either I(1) or I(0) variables as their ‘dependent’ variable. We show that P0 shocks can affect cointegration analysis and provide a formula to compute the permanent component if they are present. Finally, we reformulate a well-known empirical structural vector autoregression showing the impact of P0 shocks when there are just long-run parametric and sign restrictions.

Original languageEnglish
Pages (from-to)892-911
Number of pages20
JournalJournal of Applied Econometrics
Volume31
Issue number5
DOIs
Publication statusPublished - 1 Aug 2016

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