In this introductory chapter, we present and discuss some alternative approaches to the modelling of cointegrated systems. In particular, we try to put forward arguments for and against the modelling of cointegration relationships based on closed models or on conditional sub-systems. The structure of the chapter is as follows. We first clarify the basic notation that is used in this chapter. As the focus on the nonstationary properties of economic time series is relatively recent in econometrics. Section 1 reviews some developments of macroeconometric model building which have led to the notion of cointegration. Section 2 discusses the modelling of cointegrated series and particularly closed system (parametric) approaches. In Section 3, we discuss the use of (open) conditional systems while a brief discussion of the interpretation of ECMs is presented in Section 4.
KeywordsError Correction Model Data Generate Process Cointegrating Vector Simultaneous Equation Model Economic Time Series
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