LONG-RUN STRUCTURAL MODELLING

• Published in: Econometric reviews Vol. 21; no. 1; pp. 49 - 87
• Main Authors: Pesaran, M. Hashem, Shin, Yongcheol
• Format: Journal Article
• Language: English
• Published: Taylor & Francis Group 2002; Taylor and Francis Journals
• Series: Econometric Reviews
• Subjects: Almost Ideal Demand Systems; Asymptotic distribution; Asymptotic distribution, testing non-linear restrictions; Cointegration; Consistency; Consumer demand; Econometrics; Economic models; Identification; JEL Classifications: C1; JEL Classifications: C1, C3, D1, E1; Mathematical economics; Non-linear models; QMLE; testing non-linear restrictions
• ISSN: 0747-4938; 1532-4168
• DOI: 10.1081/ETC-120008724

The paper develops a general framework for identification, estimation, and hypothesis testing in cointegrated systems when the cointegrating coefficients are subject to (possibly) non-linear and cross-equation restrictions, obtained from economic theory or other relevant a priori information. It provides a proof of the consistency of the quasi maximum likelihood estimators (QMLE), establishes the relative rates of convergence of the QMLE of the short-run and the long-run parameters, and derives their asymptotic distributions; thus generalizing the results already available in the literature for the linear case. The paper also develops tests of the over-identifying (possibly) non-linear restrictions on the cointegrating vectors. The estimation and hypothesis testing procedures are applied to an Almost Ideal Demand System estimated on U.K. quarterly observations. Unlike many other studies of consumer demand this application does not treat relative prices and real per capita expenditures as exogenously given.