Abstract
Some key econometric concepts and problems addressed by Trygve
Haavelmo and Ragnar Frisch are discussed within the general frame-
work of a cointegrated VAR. The focus is on problems typical of time-
series data such as multicollinearity, spurious correlation and regres-
sion results, time dependent residuals, normalization, reduced rank,
model selection, missing variables, simultaneity, autonomy and iden-
ti…cation. Speci…cally the paper discusses (1) the conditions under
which the VAR model represents a full probability formulation of a
sample of time-series observations, (2) the plausibility of the multivari-
ate normality assumption underlying the VAR, (3) cointegration as a
solution to the problem of spurious correlation and multicollinearity
when data contain deterministic and stochastic trends, (4) the exis-
tence of a universe, (5) the association between Frisch’s con‡uence
analysis and cointegrated VAR analysis, (6) simultaneity and iden-
ti…cation when data are nonstationary, (7) conditions under which
identi…ed cointegration relations can be considered structural or au-
tonomous, and …nally (8) a formulation of a design of experiment for
passive observations based on theory consistent CVAR scenarios illus-
trated with a monetary model for in‡ation.
Haavelmo and Ragnar Frisch are discussed within the general frame-
work of a cointegrated VAR. The focus is on problems typical of time-
series data such as multicollinearity, spurious correlation and regres-
sion results, time dependent residuals, normalization, reduced rank,
model selection, missing variables, simultaneity, autonomy and iden-
ti…cation. Speci…cally the paper discusses (1) the conditions under
which the VAR model represents a full probability formulation of a
sample of time-series observations, (2) the plausibility of the multivari-
ate normality assumption underlying the VAR, (3) cointegration as a
solution to the problem of spurious correlation and multicollinearity
when data contain deterministic and stochastic trends, (4) the exis-
tence of a universe, (5) the association between Frisch’s con‡uence
analysis and cointegrated VAR analysis, (6) simultaneity and iden-
ti…cation when data are nonstationary, (7) conditions under which
identi…ed cointegration relations can be considered structural or au-
tonomous, and …nally (8) a formulation of a design of experiment for
passive observations based on theory consistent CVAR scenarios illus-
trated with a monetary model for in‡ation.
| Original language | English |
|---|---|
| Publisher | Department of Economics, University of Copenhagen |
| Number of pages | 33 |
| Publication status | Published - Apr 2012 |
Keywords
- Faculty of Social Sciences