A Bayesian Approach to Restrictions on the Cointegration Space
نویسنده
چکیده
The degree of empirical support of a priori plausible structures on the cointegration vectors has a central role in the analysis of cointegration. Historically, this question has been answered by classical testing of over-identifying restrictions on the cointegration space. This paper introduces an exact finite sample Bayesian procedure to calculate the posterior probability of restrictions on the cointegration space. An easily specified prior distribution is developed which takes the (curved) geometry of the parameter space into account. The procedure is illustrated on consumers’ expenditure data for the US. A small simulation study suggests that the proposed Bayesian approach is very promising.
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