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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: luca.fanelli@unibo.it
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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

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