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
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
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By Tom Engsted