The Selection of Zero-Non-Zero Patterned Cointegrating Vectors in Error Correction Modelling - Financial and Economic Forecasting (Chapter 10)
21 Pages Posted: 9 Jan 2003
Date Written: October 2002
An effective and efficient search algorithm has been developed to select from an I(1) system zero-non-zero patterned cointegrating and loading vectors in a subset VECM, where the long term impact matrix contains zero entries. The Finnish money-output model presented by Johansen and Juselius (1990) and the United States balanced growth model presented by King, Plosser, Stock and Watson (1991) are used to demonstrate the usefulness of this algorithm in examining the cointegrating relationships in vector time series.
Keywords: cointegration, vector error correction modelling, zero entry, tree pruning
JEL Classification: C10, C32
Suggested Citation: Suggested Citation