Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105700
Authors: 
Krolzig, Hans-Martin
Heinlein, Reinhold
Year of Publication: 
2013
Series/Report no.: 
School of Economics Discussion Papers 1323
Abstract: 
Introducing the approach by Masanao Aoki (1981) to time series econometrics, we show that the dynamics of symmetric linear possibly cointegrated two-country VAR models can be separated into two autonomous subsystems: the country averages and country differences, where the latter includes the exchange rate. The symmetric two-country cointegrated VAR model is synchronized, ie the two countries are driven by the same common trends, if and only if the country-differences subsystem is stable. It is shown that separability carries over even under mild asymmetries such as difference in the size of the countries' economies. The possibilities of a recursive structural VECM representation under symmetry is evaluated. The derived conditions for symmetry and separability are easily testable and applied to nine-dimensional quarterly cointegrated VAR models for five different country pairs in the post-Bretton-Woods era. We find evidence for the symmetry of the cointegration space, which is of practical importance as it allows for the identification of the cointegration vectors in much smaller systems, and for the exchange rate equation in general.
Subjects: 
Multi-country modelling
Cointegration
Common trends
Structural VAR
Synchronization
Exchange rate
International Economics
JEL: 
C32
C51
F41
Document Type: 
Working Paper

Files in This Item:
File
Size
340.39 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.