Structural Error Correction Models: A System Method for Linear Rational Expectations Models and an Application to an Exchange Rate Model |
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| Authors: | JAEBEOM KIM MASAO OGAKI MINSEOK YANG |
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| Affiliation: | Jaebeom Kim;is Assistant Professor, Department of Economics, Oklahoma State University (E-mail: ). Masao Ogaki;is Professor, Department of Economics, The Ohio State University (E-mail: ). Minseok Yang;is Instructor, Department of Finance and Insurance, Seoul Cyber University (E-mail: ). |
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| Abstract: | This paper develops a system instrumental variable method to estimate the speed of adjustment coefficient in the long-run equilibrium of structural error correction models for a class of linear rational expectations models. This method is applied to an exchange rate model with sticky prices, in which the speed of adjustment coefficient governs the half-life of the real exchange rate. Compared to single equation methods, the system method gives smaller half-life estimates with sharper standard errors. |
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| Keywords: | C32 F31 F41 |
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