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181
Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration
 Journal of Applied Econometrics
, 1999
"... This paper employs response surface regressions based on simulation experiments to calculate asymptotic distribution functions for the Johansentype likelihood ratio tests for cointegration. These are carried out in the context of the models recently proposed by Pesaran, Shin, and Smith (1997) that ..."
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Cited by 281 (11 self)
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This paper employs response surface regressions based on simulation experiments to calculate asymptotic distribution functions for the Johansentype likelihood ratio tests for cointegration. These are carried out in the context of the models recently proposed by Pesaran, Shin, and Smith (1997) that allow for the possibility of exogenous variables integrated of order one. The paper calculates critical values that are very much more accurate than those available previously. The principal contributions of the paper are a set of data files that contain estimated asymptotic quantiles obtained from response surface estimation and a computer program for utilizing them. This program, which is freely available via the Internet, can be used to calculate both asymptotic critical values and P values. JEL Classification Number: C22 Keywords: cointegration tests, Johansen tests, vector autoregressions, exogenous variables, response surfaces, critical values, approximate
2003): “Forecast uncertainties in macroeconometric modelling: an application to the UK economy
 Journal of the American Statistical Association
"... This paper argues that probability forecasts convey information on the uncertainties that surround macroeconomic forecasts in a straightforward manner which is preferable to other alternatives, including the use of confidence intervals. Probability forecasts obtained using a small benchmark macroec ..."
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Cited by 81 (29 self)
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This paper argues that probability forecasts convey information on the uncertainties that surround macroeconomic forecasts in a straightforward manner which is preferable to other alternatives, including the use of confidence intervals. Probability forecasts obtained using a small benchmark macroeconometric model as well as a number of other alternatives are presented and evaluated using recursive forecasts generated over the period 1999q12001q1. Out of sample probability forecasts of inflation and output growth are also provided over the period 2001q22003q1, and their implications discussed in relation to the Bank of England’s inflation target and the need to avoid recessions, both as separate events and jointly. The robustness of the results to parameter and model uncertainties is also investigated by a pragmatic implementation of the Bayesian model averaging approach.
Exportled growth: a survey of the empirical literature and some noncausality results part 2
 JOURNAL OF INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT, FORTHCOMING
, 2000
"... This paper continues the investigation of Giles and Williams (2000) on exportled growth (ELG). In the first part, we surveyed the empirical exportled growth literature; it was evident that Granger noncausality tests are commonly applied as a test for ELG. In this paper, we explore the sensitivity ..."
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Cited by 61 (0 self)
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This paper continues the investigation of Giles and Williams (2000) on exportled growth (ELG). In the first part, we surveyed the empirical exportled growth literature; it was evident that Granger noncausality tests are commonly applied as a test for ELG. In this paper, we explore the sensitivity of the test for exclusions restrictions often used as the Granger noncauality test for ELG by reconsidering two applications: Oxley’s (1993) study for Portugal and Henriques and Sadorsky’s (1996) analysis for Canada. We focus on robustness to the method adopted to deal with nonstationarity, including the choice of deterministic trend degree. We show that different noncausality outcomes are easy to obtain, and consequently we recommend that readers interpret the empirical ELG literature with care. Our analysis also highlights the importance of examining the robustness of Granger noncauality test results to avoid spurious outcomes in applications.
Unit Roots and Cointegration in Panels
, 2007
"... This paper provides a review of the literature on unit roots and cointegration in panels where the time dimension (T), and the cross section dimension (N) are relatively large. It distinguishes between the first generation tests developed on the assumption of the cross section independence, and the ..."
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Cited by 46 (4 self)
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This paper provides a review of the literature on unit roots and cointegration in panels where the time dimension (T), and the cross section dimension (N) are relatively large. It distinguishes between the first generation tests developed on the assumption of the cross section independence, and the second generation tests that allow, in a variety of forms and degrees, the dependence that might prevail across the different units in the panel. In the analysis of cointegration the hypothesis testing and estimation problems are further complicated by the possibility of cross section cointegration which could arise if the unit roots in the different cross section units are due to common random walk components.
Estimation and inference in short panel vector autoregressions with unit roots and cointegration
, 2003
"... This paper considers estimation and inference in panel vector autoregressions (PVARs) where (i) the individual effects are either random or fixed, (ii) the timeseries properties of the model variables are unknown a priori and may feature unit roots and cointegrating relations, and (iii) the time di ..."
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Cited by 44 (1 self)
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This paper considers estimation and inference in panel vector autoregressions (PVARs) where (i) the individual effects are either random or fixed, (ii) the timeseries properties of the model variables are unknown a priori and may feature unit roots and cointegrating relations, and (iii) the time dimension of the panel is short and its crosssectional dimension is large. Generalized Method of Moments (GMM) and Quasi Maximum Likelihood (QML) estimators are obtained andthencomparedintermsoftheirasymptoticandfinite sample properties. It is shown that GMM estimators based only on standard orthogonality conditions break down if the underlying time series contain unit roots. Extended GMM estimators making use of further moment conditions are not subject to this problem. However, their finite sample performance is shown to deteriorate as a ratio of crosssection to timeseries variation is increased, while the performance of the fixed effects QML estimator is invariant to this ratio. The QML estimators also tend to outperform the various GMM estimators in finite sample. Overall, our findings favor the use of the fixed effects QML estimator, given that it does not impose any restrictions on the distribution generating the individual effects. The paper also shows how the fixed effects QML
A PairWise Approach to Testing for Output and Growth Convergence
 FORTHCOMING IN JOURNAL OF ECONOMETRICS
, 2006
"... This paper proposes a pairwise approach to testing for output convergence that considers all N(N1)/2 possible pairs of log per capita output gaps across N economies. A general probabilistic definition of output convergence is also proposed, which suggests that all such output gap pairs must be sta ..."
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Cited by 44 (13 self)
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This paper proposes a pairwise approach to testing for output convergence that considers all N(N1)/2 possible pairs of log per capita output gaps across N economies. A general probabilistic definition of output convergence is also proposed, which suggests that all such output gap pairs must be stationary with a constant mean. The approach is compatible with individual output series having unit roots, or other nonstationary common components and does not involve the choice of a reference country in computation of output gaps. It is also applicable when N is large relative to T (the time dimension of the panel). After providing some encouraging Monte Carlo evidence on the small sample properties of the pairwise test, the test is applied to output series in the Penn World Tables over 19502000. Overall, the results do not support output convergence, and suggest that the …ndings of convergence clubs in the literature might be spurious. However, significant evidence of growth convergence is found, a result which is reasonably robust to the choice of the sample period and country groupings. Nonconvergence of log per capita outputs combined with growth convergence suggests that while common technological progress seems to have been diffusing reasonably widely across economies, there are nevertheless important countryspecific factors that render output gaps highly persistent, such that we can not be sure that the probability for the output gaps to lie within a fixed range will be nonzero.
Macroeconometric modelling with a global perspective
 The Manchester School, Supplement
, 2006
"... This paper provides a synthesis and further development of a global modelling approach introduced in Pesaran, Schuermann and Weiner (2004), where country speci…c models in the form of VARX * structures are estimated relating a vector of domestic variables, xit, to their foreign counterparts, x it, a ..."
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Cited by 34 (13 self)
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This paper provides a synthesis and further development of a global modelling approach introduced in Pesaran, Schuermann and Weiner (2004), where country speci…c models in the form of VARX * structures are estimated relating a vector of domestic variables, xit, to their foreign counterparts, x it, and then consistently combined to form a Global VAR (GVAR). It is shown that the VARX * models can be derived as the solution to a dynamic stochastic general equilibrium (DSGE) model where overidentifying longrun theoretical relations can be tested and imposed if acceptable. This gives the system a transparent longrun theoretical structure. Similarly, shortrun overidentifying theoretical restrictions can be tested and imposed if accepted. Alternatively, if one has less con…dence in the shortrun theory the dynamics can be left unrestricted. The assumption of the weak exogeneity of the foreign variables for the longrun parameters can be tested, where x it variables can be interpreted as proxies for global factors. Rather than using deviations from ad hoc statistical trends, the equilibrium values of the variables re‡ecting the longrun theory embodied in the model can be calculated. This approach has been used in a wide variety of contexts and for a wide variety of purposes. The paper also provides some new results. Keywords: Global VAR (GVAR), DSGE models, VARX*.
European Central Bank
, 2008
"... New Keynesian Phillips Curves (NKPC) have been extensively used in the analysis of monetary policy, but yet there are a number of issues of concern about how they are estimated and then related to the underlying macroeconomic theory. The first is whether such equations are identified. To check ident ..."
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Cited by 27 (0 self)
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New Keynesian Phillips Curves (NKPC) have been extensively used in the analysis of monetary policy, but yet there are a number of issues of concern about how they are estimated and then related to the underlying macroeconomic theory. The first is whether such equations are identified. To check identification requires specifying the process for the forcing variables (typically the output gap) and solving the model for inflationintermsoftheobservables. Inpractice,theequationisestimatedby GMM, relying on statistical criteria to choose instruments. This may result in failure of identification or weak instruments. Secondly, the NKPC is usually derived as a part of a DSGE model, solved by loglinearising around a steady state and the variables are then measured in terms of deviations from the steady state. In practice the steady states, e.g. for output, are usually estimated by some statistical procedure such as the HodrickPrescott (HP) filter that might not be appropriate. Thirdly, there are arguments that other variables, e.g. interest rates, foreign inflation and foreign output gaps should enter the Phillips curve. This paper examines these three issues and argues that all three benefit from a global perspective. The global perspective provides additional instruments to alleviate the weak instrument problem, yields a theoretically consistent measure of the steady state and provides a natural route for foreign inflation or output gap to enter the NKPC. Keywords: Global VAR (GVAR), identification, New Keynesian Phillips Curve, TrendCycle decomposition.