Multicointegration in Stock-Flow Models

Working Paper 1997-18

24 Pages Posted: 21 Jan 1998

See all articles by Tom Engsted

Tom Engsted

University of Aarhus - CREATES

Niels Haldrup

Aarhus University, School of Economics and Management; CREATES

Date Written: October 13, 1997

Abstract

Multicointegration, in the sense of Granger and Lee (1990), frequently occurs in models of stock-flow adjustment and implies cointegration amongst I(2) variables and their differences (polynomial cointegration). The purpose of this article is two-fold. First, we demonstrate that based on a multicointegrated vector autoregression (VAR) two equivalent error correction model (ECM) representations can be derived; the first is expressed in terms of adjustments in the flows of the variables (the standard I(2) ECM), and the second is expressed in terms of adjustments in both the stocks and the flows. Secondly, we apply I(2) estimation and testing procedures for multicointegrated time series to analyze data for US housing construction. We find that stocks of housing units started and completed exhibit polynomial cointegration (and hence the flows are multicointegrated) and the associated ECM's are estimated. Lee (1992, 1996) also found multicointegration in this data set but without explicitly exploiting the I(2) property.

JEL Classification: C12, C13, C22, C32, C51

Suggested Citation

Engsted, Tom and Haldrup, Niels, Multicointegration in Stock-Flow Models (October 13, 1997). Working Paper 1997-18. Available at SSRN: https://ssrn.com/abstract=54560 or http://dx.doi.org/10.2139/ssrn.54560

Tom Engsted

University of Aarhus - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Niels Haldrup (Contact Author)

Aarhus University, School of Economics and Management ( email )

Universitetsparken
Aarhus, DK 8000 C
Denmark
+45 8942 1133 (Phone)
+45-8613-6334 (Fax)

CREATES ( email )

School of Economics and Management
Aarhus University
Aarhus, DK 8000 C
Denmark
+4589421613 (Phone)

HOME PAGE: http://www.creates.au.dk/en

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