In this chapter, the powerful tool of likelihood-based inference in cointegrated vector autoregressive models (VECMs) is discussed. In the first section, the specification and assumptions of a VECM are introduced. In the following sections, the problems of determining the cointegration rank, testing for weak exogenity, and testing of various restrictions placed on the cointegrating vectors are discussed. The topic of VECMs that are contaminated by a one-time structural shift and how this kind of model can be estimated are presented. This chapter concludes with an exposition of structural vector error-correction models.
KeywordsReal Wage Labor Demand Purchase Power Parity Structural Shift Cointegration Relationship
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