Exogenity and Measures of Persistente

Revista de Economia del Rosario, Vol. 5, No. 1, 2002

10 Pages Posted: 6 Sep 2006

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management

Abstract

This paper argues that the fact that the empirical evidence on persistence is mixed is not very surprising, as economic theory is bound to be drawn upon in order to specify the statistical model. This is illustrated in two ways. Firstly, we highlight the fact that concept of persistence is model dependent, i.e. it is a function of the maintained model adopted on the basis of economic theory. Secondly, we analyse the related issue of the definition of a set of parameters of interest. In particular, consider a simple bivariate case. Given weak exogeneity of the regressors, the parameters of the unique cointegrating vector can equivalently be estimated within a full system or a single equation framework. On the contrary, if persistence is being measured , weak exogeneity of the regressor does not hold any longer, as the parameters of interest cannot be written as a function of those of the conditional model only, and the concept of model (rather than weak) exogeneity becomes more relevant. Once again, economic theory can be seen to play an essential role in model specification.

Keywords: Persistence, weak exogeneity, autocorrelation function, conditioning information set, dynamic models, cointegration

JEL Classification: C22, C32

Suggested Citation

Caporale, Guglielmo Maria and Pittis, Nikitas, Exogenity and Measures of Persistente. Revista de Economia del Rosario, Vol. 5, No. 1, 2002, Available at SSRN: https://ssrn.com/abstract=928497

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
Germany

Nikitas Pittis

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

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