Vector Autoregressive and Vector Error Correction Models

摘要: Introduction The first step in constructing a model for specific purpose or particular sector of an economy is to decide on the variables be included analysis. At this stage it usually important take into account what economic theory has say about relations between interest. Suppose we want analyze transmission mechanism monetary policy. An relation that context money demand function, which describes link real and economy. In relationship stock variable depends transactions volume opportunity costs holding money. As example consider German M3 as variable, GNP proxy volume, long-term interest rate R cost inflation Dp = Δp, where p denotes log deflator. latter may regarded expected inflation, also considered variable. Because quantity suggests linear relation, focus m gnp GNP. Seasonally unadjusted quarterly series period 1972–98 are plotted Figure 3.1. Of course, many more related presently ones and, hence, could However, increasing number equations does not generally lead better because doing so makes difficult capture dynamic, intertemporal them.