Hostname: page-component-586b7cd67f-t8hqh Total loading time: 0 Render date: 2024-11-24T20:48:50.606Z Has data issue: false hasContentIssue false
  • English
  • Français

PRESENT VALUE RELATIONS, GRANGER NONCAUSALITY, AND VAR STABILITY

Published online by Cambridge University Press:  06 September 2007

Luca Fanelli
Luca Fanelli
Affiliation:
Luca Fanelli, Department of Statistics, University of Bologna, via Belle Arti, 41, I-40126 Bologna; e-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

When in the class of “exact” present value (PV) relations the decision variables do not Granger cause the explanatory variables, and a vector autoregressive (VAR) process is used to derive the cross-equation restrictions, the system embodies explosive roots, which hardly can be reconciled with the typical features observed in most macroeconomic time series. This paper investigates the issue.I thank Paolo Paruolo and two anonymous referees for helpful comments and suggestions on earlier drafts of the paper. I am solely responsible for all remaining errors.

Type
NOTES AND PROBLEMS
Information
Econometric Theory , Volume 23 , Issue 6 , December 2007 , pp. 1254 - 1260
Copyright
© 2007 Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Baillie, R.T. (1989) Econometric tests of rationality and market efficiency. Econometric Reviews 8, 151–186.Google Scholar
Bekaert, G. & R. Hodrick (2001) Expectations hypotheses tests. Journal of Finance 56, 1357–1394.Google Scholar
Campbell, J.Y. & R.J. Shiller (1987) Cointegration and tests of present-value models. Journal of Political Economy 95, 1052–1088.Google Scholar
Campbell, J.Y. & R.J. Shiller (1988) The dividend-price ratio and expectations of future dividends and discount factors. Review of Financial Studies 1, 195–228.Google Scholar
Diba, B.T. & H.I. Grossman (1988) Explosive rational bubbles in stock prices? American Economic Review 78, 520–530.Google Scholar
Engsted, T. & N. Haldrup (1994) The linear quadratic adjustment cost model and the demand for labour. Journal of Applied Econometrics 9, 145–159.Google Scholar
Fanelli, L. (2002) A new approach for estimating and testing the linear quadratic adjustment cost model under rational expectations and I(1) variables. Journal of Economic Dynamics and Control 26, 117–139.Google Scholar
Fanelli, L. (2006a) Dynamic adjustment cost models with forward-looking behavior. Econometrics Journal 9, 23–47.Google Scholar
Fanelli, L. (2006b) Multi-equational linear quadratic adjustment cost models with rational expectations and cointegration. Journal of Economic Dynamics and Control 30, 445–456.Google Scholar
Galì, J. & M. Gertler (1999) Inflation dynamics: A structural econometric analysis. Journal of Monetary Economics 44, 195–222.Google Scholar
Hansen, L.P. & T.J. Sargent (1981) Linear rational expectations models for dynamically interrelated variables. In R.E. Lucas, Jr. & T.J. Sargent (eds.), Rational Expectations and Econometric Practise, pp. 127–156. University of Minnesota Press.
Hansen, L.P. & T.J. Sargent (1991) Exact linear rational expectations models: Specification and estimation. In L.P. Hansen & T.J. Sargent (eds.), Rational Expectations Econometrics, pp. 45–75. Westview Press.
Johansen, S. (1996) Likelihood Based Inference in Cointegrated Vector Autoregressive Models. Oxford University Press.
Johansen, S. & A.R. Swensen (1999) Testing exact rational expectations in cointegrated vector autoregressive models. Journal of Econometrics 93, 73–91.Google Scholar
Meese, R. (1980) Dynamic factor demand schedules for labour and capital under rational expectations. Journal of Econometrics 14, 141–158.Google Scholar
Sargent, T.J. (1979) A note on the maximum likelihood estimation of the rational expectations model of the term structure. Journal of Monetary Economics 5, 133–143.Google Scholar
Sargent, T.J. (1987) Macroeconomic Theory, 2nd ed. Academic Press.
Timmermann, A. (1994) Present value models with feedback. Solutions, stability, bubbles and some empirical evidence. Journal of Economic Dynamics and Control 18, 1093–1119.Google Scholar