# Cointegration for the Applied Economist, Second Edition

, by Rao, B. Bhaskara**Note:**Supplemental materials are not guaranteed with Rental or Used book purchases.

- ISBN: 9781403996145 | 1403996148
- Cover: Hardcover
- Copyright: 9/15/2007

The second edition of the landmark book on unit roots and cointegration techniques updated with new developments.

B. BHASKARA RAO is Professor of Economics at the University of the South Pacific, Fiji.

List of Tables | p. x |

List of Figures and Screens | p. xiii |

Preface to the First Edition | p. xiv |

Preface to the Second Edition | p. xvi |

Notes on Contributors | p. xviii |

Introduction | p. 1 |

Introduction | p. 1 |

Unit roots and cointegration | p. 1 |

Economic implications | p. 3 |

An overview of the papers | p. 5 |

Concluding observations | p. 8 |

A Primer on Cointegration with an Application to Money and Income | p. 10 |

Introduction | p. 10 |

Testing for cointegration: a general framework | p. 10 |

Locating stationary linear combination of variables | p. 12 |

Multiple cointegrating vectors | p. 13 |

Tests for cointegration and their relation to unit root tests | p. 15 |

Is there an economic interpretation of cointegration vectors? | p. 16 |

Cointegration with exogenous variables | p. 16 |

Should there be many or few cointegrating vectors? | p. 20 |

Alternative tests for cointegration | p. 21 |

A note about distributions | p. 22 |

Other approaches to cointegration | p. 23 |

An application of cointegration: the demand for money | p. 24 |

The velocity of M1 and M2 | p. 25 |

The velocity of the monetary base | p. 28 |

Empirical results | p. 28 |

Tests for the order of integration | p. 29 |

Tests for cointegration using three methodologies | p. 29 |

Cointegration using alternative monetary aggregates | p. 32 |

Cointegration and the monetary base | p. 34 |

Summary and conclusions | p. 35 |

Appendix to Chapter 2 | p. 36 |

Unit Roots and Cointegration for the Economist | p. 43 |

Introduction | p. 43 |

Stationarity and unit roots | p. 45 |

Stationary time series | p. 45 |

The first order autoregressive process: AR(1) | p. 45 |

Second order autoregressive case: AR(2) | p. 50 |

Testing for unit roots | p. 51 |

The Dickey-Fuller tests | p. 51 |

The Augmented Dickey-Fuller regression | p. 55 |

A suggested sequential procedure for unit root testing | p. 56 |

Phillips and Perron tests | p. 59 |

Unit root tests and structural breaks | p. 61 |

Trend and difference stationarity | p. 63 |

The error correction mechanism (ECM) | p. 64 |

Cointegration | p. 66 |

The cointegrating regression | p. 70 |

Testing for cointegration | p. 71 |

Estimating the ECM | p. 72 |

Johansen procedure | p. 74 |

Cointegration and econometric modelling | p. 80 |

Concluding comments | p. 83 |

Appendix to Chapter 3 | p. 84 |

The Significance of Unit Roots and the Pitfalls of Mechanical Statistics | p. 101 |

Introduction | p. 101 |

Mechanical statistics | p. 103 |

Applied econometrics | p. 104 |

Significance | p. 107 |

Unit roots | p. 109 |

VARs, error correction and cointegration | p. 115 |

Weak exogeneity | p. 122 |

Identification | p. 124 |

Conclusions | p. 127 |

Unit Roots and Structural Breaks: A Survey of the Literature | p. 129 |

Introduction | p. 129 |

Unit roots and ADF tests | p. 130 |

Exogenous structural breaks | p. 131 |

Endogenous structural breaks | p. 132 |

Non-linear breaks and GLS detrending | p. 134 |

Multiple structural breaks | p. 135 |

Two structural breaks | p. 136 |

Multiple breaks | p. 136 |

Unit roots and structural breaks: applied papers | p. 137 |

Other issues | p. 138 |

Conclusion | p. 139 |

Software | p. 141 |

New Unit Root Tests Designed for the Trend-Break Stationary Alternative: Simulation Evidence and Empirical Applications | p. 143 |

Introduction | p. 143 |

Model and test statistics | p. 145 |

Finite sample size and power | p. 159 |

Empirical applications | p. 188 |

Extended Nelson-Plosser data set | p. 188 |

Real per capita GDP for 18 OECD countries | p. 191 |

Conclusions | p. 192 |

p. 192 | |

p. 193 | |

How to Deal with Structural Breaks in Practical Cointegration Analysis? | p. 195 |

Introduction | p. 195 |

Univariate case | p. 196 |

Shift in intercept model | p. 196 |

Shift in mean and trend model | p. 198 |

Generalization to an AR(k) process | p. 199 |

Generalization to the case of more than one shift | p. 199 |

Multivariate case | p. 200 |

Shift in intercept model: none of the p time series have a deterministic trend | p. 202 |

Some or all of the time series follow a trending pattern | p. 203 |

Some or all of the time series follow a trending pattern in each sub-sample and the cointegrating relations are stationary in each sub-sample (with possibly a broken constant level); trend breaks are allowed only in the non-stationary series | p. 203 |

Unit root tests | p. 203 |

Empirical illustration: A German money-demand system | p. 203 |

Description | p. 203 |

The analysis | p. 205 |

Conclusion | p. 213 |

Appendix to Chapter 7 | p. 213 |

Specification of the model: deterministic components and exogenous variables | p. 215 |

Cointegration tests | p. 215 |

Empirical illustration: a German money-demand system | p. 216 |

Other important matters | p. 221 |

Panel Cointegration Analysis: An Empirical Example | p. 222 |

Introduction | p. 222 |

Model specification, data and cointegration analysis | p. 224 |

Empirical results | p. 228 |

Conclusions | p. 233 |

Appendix to Chapter 8 | p. 233 |

References | p. 245 |

Index | p. 257 |

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