Structural Error Correction Models: Instrumental Variables Methods and an application to an exchange rate model

Jaebeom Kim, Masao Ogaki and Minseok Yang
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Minseok Yang: Seoul Cyber University

No 502, RCER Working Papers from University of Rochester - Center for Economic Research (RCER)

Abstract: Error correction models are widely used to estimate dynamic cointegrated systems. In most applications error correction models are reduced form models. As a result, non-structural speed of adjustment coefficients are estimated in these applications. A single equation instrumental variable method can be used to estimate a structural speed of adjustment coefficient. This paper develops a system instrumental variable method to estimate the structural speed of adjustment coefficient in an error correction model. This method utilizes Hansen and Sargent's (1982) instrumental variable estimator for linear rational expectations models, and is applied to an exchange rate model with sticky prices.

Pages: 24 pages
Date: 2003-10
New Economics Papers: this item is included in nep-ecm and nep-ifn
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Citations: View citations in EconPapers (4)

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