Exogeneity in Error Correction Models

1 Introduction and Summary.- 2 Cointegrated Systems.- 2.1 Some Historical Background to the Modelling of Economic Time Series.- 2.2 Integration and Cointegration.- 2.3 The Modelling of Cointegrated Systems.- 2.4 Cointegration and Conditional Sub-systems.- 2.5 Error Correction Models.- 2.6 Conclusions.- 3 Weak Exogeneity in ECMs.- 3.1 Weak Exogeneity.- 3.1.1 Definition and example.- 3.1.2 Empirical motivations.- 3.2 Reduced Form Error Correction Models.- 3.2.1 The error correction system in reduced form.- 3.2.2 Single equation error correction model in reduced form and weak exogeneity.- 3.3 ECMs in Structural Form.- 3.3.1 The error correction system in structural form.- 3.3.2 Single equation error correction model in structural form and weak exogeneity.- 3.4 Inference on Weak Exogeneity in ECMs.- 3.4.1 Are orthogonality tests useful in single equation ECMs.- 3.4.2 Testing for the presence of cointegrating vectors in the marginal models.- 3.5 Empirical Illustration.- 3.5.1 Belgium consumption function: Steel (1987).- 3.5.2 Aggregate import demand function: Urbain (1988).- 3.5.3 The UK demand for money: Lubrano et al. (1986), Steel and Richard (1991).- 3.6 Conclusions.- 4 Testing for Weak Exogeneity.- 4.1 Introduction.- 4.2 Exogeneity and the Incomplete SEM.- 4.3 The Behaviour of Orthogonality Tests in the Presence of (Co)-Integrated Variables.- 4.3.1 Testing for weak exogeneity within a limited information framework.- 4.3.2 Small sample behaviour: some simulation evidence.- 4.3.3 Asymptotic distribution.- 4.4 Testing for Weak Exogeneity in ECMs where the Short Run Dynamic Parameters are Parameters of Interest.- 4.5 Conclusions.- 5 Empirical Analysis: The Case of Aggregate Imports.- 5.1 Background.- 5.1.1 The imperfect substitutes model for aggregate trade flows.- 5.1.2 Econometric issues in trade modelling.- 5.2 System versus Partial Approach to the Modelling of Belgium Aggregate Imports.- 5.2.1 Univariate analysis.- 5.2.2 Multivariate cointegration and simultaneous equation models.- 5.2.3 Partial modelling of aggregate imports: a structural ECM.- 5.3 Conclusions.- 6 Conclusions.- Author Index.