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| Author: | Caporale, G. M. Pittis, N. |
| Title: | Parameter Instability, Superexogeneity, and the Monetary Model of the Exchange Rate |
| Journal: | Weltwirtschaftliches Archiv
2001 : VOL. 137:3, p. 501-524 |
| Index terms: | MONETARY POLICY EXCHANGE RATES ECONOMICS |
| Language: | eng |
| Abstract: | In this paper the authors argue that not much reliance can be put on the results reported in such studies, as cointegration analysis is only valid in the context of a well-specified model. In particular, one crucial condition which should be tested (and not assumed to hold, as in the existing literature) is that the model is stable. This is because in several cases the type of time heterogeneity exhibited by the data generation process (DGP) is more complex than that associated with unit roots, and therefore estimation of the full system will result in parameter time dependence and misleading statistical inference. However, if parameter instability can be attributed to a particular subset of variables in the system, and if they are super- exogenous with respect to the parameters of interest, then conditioning on those variables results in a partial model. |
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