Structural ECM Models

Abstract

In chapter 2 the process of econometric modelling was divided into two stages (compare table 2.1). The first stage covers the transition from sample to population. The relevant statistical theory, namely the cointegrated VAR model, was detailed in chapter 3. The second stage covers the transition from population to structure. The corresponding entrance of economic theory into the statistical model is detailed in the present chapter. To this end, the cointegrated VAR model is first factorized into a conditional and a marginal VAR. The conditional VAR is then subjected to suitable just-identifying restrictions producing an economically meaningful structural ECM, and to certain over-identifying restrictions producing useful exogeneity-and causality properties for the conditional model.