Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression

12 Pages Posted: 21 Nov 2007

See all articles by Kevin D. Hoover

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Soren Johansen

University of Copenhagen - Department of Economics; Aarhus University - CREATES

Katarina Juselius

University of Copenhagen - Department of Economics

Date Written: November 16, 2007

Abstract

An explication of the key ideas behind the Cointegrated Vector Autoregression Approach. The CVAR approach is related to Haavelmo's famous "Probability Approach in Econometrics" (1944). It insists on careful stochastic specification as a necessary groundwork for econometric inference and the testing of economic theories. In time-series data, the probability approach requires careful specification of the integration and cointegration properties of variables in systems of equations. The relationship between the CVAR approach and wider methodological issues and between it and related approaches (e.g., the LSE approach) are explored. The specific-to-general strategy of widening the scope of econometric models to identify stochastic trends and cointegrating relations and to nest theoretical economic models is illustrated with the example of purchasing-power parity.

Keywords: cointegrated vector autoregression, VAR, CVAR, cointegration, Johansen, Juselius, Haavelmo, time-series models, Walrasian methodology, Marshallian methodology

JEL Classification: B41, C30, C32, C50, C51, C52

Suggested Citation

Hoover, Kevin D. and Johansen, Soren and Juselius, Katarina, Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression (November 16, 2007). Available at SSRN: https://ssrn.com/abstract=1031409 or http://dx.doi.org/10.2139/ssrn.1031409

Kevin D. Hoover (Contact Author)

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Soren Johansen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Aarhus University - CREATES ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

Katarina Juselius

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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