Linking Simple Economic Theory Models and the Cointegrated Vector AutoRegressive Model: Some Illustrative Examples
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Linking Simple Economic Theory Models and the Cointegrated Vector AutoRegressive Model : Some Illustrative Examples. / Møller, Niels Framroze.
Cph. : Department of Economics, University of Copenhagen, 2006.Research output: Working paper › Research
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TY - UNPB
T1 - Linking Simple Economic Theory Models and the Cointegrated Vector AutoRegressive Model
T2 - Some Illustrative Examples
AU - Møller, Niels Framroze
N1 - JEL Classification: C32
PY - 2006
Y1 - 2006
N2 - This paper attempts to clarify the connection between simple economic theory models and the approach of the Cointegrated Vector-Auto-Regressive model (CVAR). By considering (stylized) examples of simple static equilibrium models, it is illustrated in detail, how the theoretical model and its structure and assumptions can be translated into a CVAR. We also see how the CVAR allows for explicit hypotheses about transitory dynamics, that could be relevant for assessing price rigidity, and hence, "the length of the short run" - a controversial issue in traditional macroeconomics. Moreover, it is demonstrated how other controversial hypotheses such as Rational Expectations can be formulated directly as restrictions on the CVAR-parameters. A simple example of a "Neoclassical synthetic" AS-AD model is also formulated. Finally, the partial- general equilibrium distinction is related to the CVAR as well. Further fundamental extensions and advances to more sophisticated theory models, such as those related to dynamics and expectations (in the structural relations) are left for future papers
AB - This paper attempts to clarify the connection between simple economic theory models and the approach of the Cointegrated Vector-Auto-Regressive model (CVAR). By considering (stylized) examples of simple static equilibrium models, it is illustrated in detail, how the theoretical model and its structure and assumptions can be translated into a CVAR. We also see how the CVAR allows for explicit hypotheses about transitory dynamics, that could be relevant for assessing price rigidity, and hence, "the length of the short run" - a controversial issue in traditional macroeconomics. Moreover, it is demonstrated how other controversial hypotheses such as Rational Expectations can be formulated directly as restrictions on the CVAR-parameters. A simple example of a "Neoclassical synthetic" AS-AD model is also formulated. Finally, the partial- general equilibrium distinction is related to the CVAR as well. Further fundamental extensions and advances to more sophisticated theory models, such as those related to dynamics and expectations (in the structural relations) are left for future papers
KW - Faculty of Social Sciences
KW - cointegrated VAR
KW - static theory models
KW - AS-AD
KW - price rigidities
KW - rational expectations
KW - general equilibrium
M3 - Working paper
BT - Linking Simple Economic Theory Models and the Cointegrated Vector AutoRegressive Model
PB - Department of Economics, University of Copenhagen
CY - Cph.
ER -
ID: 312616