Exact Rational Expectations, Cointegration, and Reduced Rank Regression
CREATES Research Paper No. 2007-41
13 Pages Posted: 24 Jun 2008
Date Written: December 4, 2007
Abstract
We interpret the linear relations from exact rational expectations models as restrictions on the parameters of the statistical model called the cointegrated vector autoregressive model for non-stationary variables. We then show how reduced rank regression, Anderson (1951), plays an important role in the calculation of maximum likelihood estimation of the restricted parameters.
Keywords: Exact rational expectations, Cointegrated VAR model, Reduced rank regression
JEL Classification: C32
Suggested Citation: Suggested Citation
Johansen, Soren and Swensen, Anders Rygh, Exact Rational Expectations, Cointegration, and Reduced Rank Regression (December 4, 2007). CREATES Research Paper No. 2007-41, Available at SSRN: https://ssrn.com/abstract=1150680 or http://dx.doi.org/10.2139/ssrn.1150680
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