Time series analysis and simultaneous equation econometric models (1974)

Arnold Zellner; Franz C. Palm

doi:10.1017/CBO9780511493171.002

1 - Time series analysis and simultaneous equation econometric models (1974)

Published online by Cambridge University Press: 24 October 2009

Arnold Zellner and

Franz C. Palm

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Arnold Zellner and

Franz C. Palm

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Arnold Zellner: Affiliation:
Professor Emeritus of Economics and Statistics, Graduate School of Business, University of Chicago, Chicago, IL
Franz C. Palm: Affiliation:
Professor of Econometrics, Faculty of Economics and Business Administration, Maastricht University
Arnold Zellner: Affiliation:
University of Chicago
Franz C. Palm: Affiliation:
Universiteit Maastricht, Netherlands

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Introduction

In this chapter we take up the analysis of dynamic simultaneous equation models (SEMs) within the context of general linear multiple time series processes such as studied by Quenouille (1957). As noted by Quenouille, if a set of variables is generated by a multiple time series process, it is often possible to solve for the processes generating individual variables, namely the “final equations” of Tinbergen (1940), and these are in the autoregressive-moving average (ARMA) form. ARMA processes have been studied intensively by Box and Jenkins (1970). Further, if a general multiple time series process is appropriately specialized, we obtain a usual dynamic SEM in structural form. By algebraic manipulations, the associated reduced form and transfer function equation systems can be derived. In what follows, these equation systems are presented and their properties and uses are indicated.

It will be shown that assumptions about variables being exogenous, about lags in structural equations of SEMs, and about serial correlation properties of structural disturbance terms have strong implications for the properties of transfer functions and final equations that can be tested. Further, we show how large sample posterior odds and likelihood ratios can be used to appraise alternative hypotheses. In agreement with Pierce and Mason (1971), we believe that testing the implications of structural assumptions for transfer functions and, we add, final equations is an important element in the process of iterating in on a model that is reasonably in accord with the information in a sample of data.

Type: Chapter
Information: The Structural Econometric Time Series Analysis Approach , pp. 3 - 43

DOI: https://doi.org/10.1017/CBO9780511493171.002 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2004

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References

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Zellner, A. After completing this paper, the following Ph.D. Thesis, dealing with related topics, was brought to our attention by Dennis Aigner:

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1 - Time series analysis and simultaneous equation econometric models (1974)

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