Permanent and transitory shocks in the presence of asymmetric error correction |
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Authors: | F Chan |
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Institution: | School of Economics and Finance, Curtin University, Perth, Australia |
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Abstract: | This article highlights the potential importance of asymmetries in the loading vector of a set of cointegrated variables for the construction, analysis and interpretation of permanent and transitory shocks using impulse response functions. We derive an asymmetric version of the Permanent–Transitory decomposition suggested by Gonzalo and Ng (2001) and illustrate the potential importance of such asymmetries using the ‘cay’ data of Lettau and Ludvigson (2004). |
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Keywords: | impulse responses asymmetry cointegration permanent and transitory shocks |
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