Econometric Theory

Table of Contents - 2010 - Volume , Issue 03  

ARTICLES

ANALYSIS OF COEXPLOSIVE PROCESSES

Bent Nielsena1 c1

a1 University of Oxford

Abstract

A vector autoregressive model allowing for unit roots as well as an explosive characteristic root is developed. The Granger-Johansen representation shows that this results in processes with two common features: a random walk and an explosively growing process. Cointegrating and coexplosive vectors can be found that eliminate these common factors. The likelihood ratio test for a simple hypothesis on the coexplosive vectors is analyzed. The method is illustrated using data from the extreme Yugoslavian hyperinflation of the 1990s.

Correspondence:

c1 Address correspondence to Bent Nielsen, Nuffield College, Oxford OX1 1NF, UK; e-mail: bent.nielsen@nuffield.ox.ac.uk.

Footnotes

I am grateful to Søren Johansen, who read an earlier version of this paper very carefully and presented it at the Conference on Common Features in Rio de Janeiro in July 2002. I have also benefited from discussions with Martin Wagner and insightful comments from the referees. Computations were done using PcGive (Doornik and Hendry, 2001). Financial support from ESRC grant RES-000-27-0179 is gratefully acknowledged.