Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 30:
Applied Cointegration Analysis in the Mirror of Macroeconomic Theory

Paul Söderlind () and Anders Vredin ()

Abstract: Applied cointegration analysis has much to gain from strong links with economic theory. For example, the current generation of equilibrium macroeconomic models have simple predi tions for cointegrating vectors. These models also suggest that important information about the economic structure can be found in the short run dynamics, which most cointegration studies disregard. Simulations of a stochastic business cycle model show that tests of cointegrating vectors, forecasts, and variance decompositions based on long run assumptions can be sharpened by imposing even very simple economic restrictions.

Keywords: Cointegration; money demand; stochastic growth model; (follow links to similar papers)

JEL-Codes: C32; E32; (follow links to similar papers)

25 pages, November 1994

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This paper is published as:
Söderlind, Paul and Anders Vredin, (1996), 'Applied Cointegration Analysis in the Mirror of Macroeconomic Theory', Journal of Applied Econometrics, Vol. 11, pages 363-381

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