Haavelmo's Probability Approach and the Cointegrated VAR

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  • DP 12 01

    Submitted manuscript, 240 KB, PDF document

Some key econometric concepts and problems addressed by Trygve
Haavelmo and Ragnar Frisch are discussed within the general frame-
work of a cointegrated VAR. The focus is on problems typical of time-
series data such as multicollinearity, spurious correlation and regres-
sion results, time dependent residuals, normalization, reduced rank,
model selection, missing variables, simultaneity, autonomy and iden-
ti…cation. Speci…cally the paper discusses (1) the conditions under
which the VAR model represents a full probability formulation of a
sample of time-series observations, (2) the plausibility of the multivari-
ate normality assumption underlying the VAR, (3) cointegration as a
solution to the problem of spurious correlation and multicollinearity
when data contain deterministic and stochastic trends, (4) the exis-
tence of a universe, (5) the association between Frisch’s con‡uence
analysis and cointegrated VAR analysis, (6) simultaneity and iden-
ti…cation when data are nonstationary, (7) conditions under which
identi…ed cointegration relations can be considered structural or au-
tonomous, and …nally (8) a formulation of a design of experiment for
passive observations based on theory consistent CVAR scenarios illus-
trated with a monetary model for in‡ation.
Original languageEnglish
PublisherDepartment of Economics, University of Copenhagen
Number of pages33
Publication statusPublished - Apr 2012

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