Cointegrating Vector Restrictions
Posted: Thu Jan 26, 2012 11:27 am
Maybe this makes more sense:
I have the system:
c, i, m-p, y, R The vars are real consumption, real investment, real money balances, real output and the interest rate respectively.
The cointegration test shows that I have two cointegrating vectors. I expect that these two are the consumption-output ratio 1 to 1 relationship
and the money demand function m-p has 1 to 1 with y and negative and small with R.
My question is: What is the restriction I have to run in Eviews to identify as the cointegrating vectors that I detected the consumption-output and
the money demand function?
For the first I know that the restriction is set as [1, 0, 0, -1, 0]
But for the money demand is it:
a. [0, 0, 1, -1, bR] or
b. [0, 0, -1, -1, bR]
I am confused with the sign of real money balances (m-p)...
I have the system:
c, i, m-p, y, R The vars are real consumption, real investment, real money balances, real output and the interest rate respectively.
The cointegration test shows that I have two cointegrating vectors. I expect that these two are the consumption-output ratio 1 to 1 relationship
and the money demand function m-p has 1 to 1 with y and negative and small with R.
My question is: What is the restriction I have to run in Eviews to identify as the cointegrating vectors that I detected the consumption-output and
the money demand function?
For the first I know that the restriction is set as [1, 0, 0, -1, 0]
But for the money demand is it:
a. [0, 0, 1, -1, bR] or
b. [0, 0, -1, -1, bR]
I am confused with the sign of real money balances (m-p)...