Social and Behavioral Sciences Commons^™

Levels, Differences And Ecms – Principles For Improved Econometric Forecasting, P. Geoffrey Allen, Robert Fildes

PERI Working Papers

An avalanche of articles has described the testing of a time series for the presence of unit roots. However, economic model builders have disagreed on the value of testing and how best to operationalise the tests. Sometimes the characterization of the series is an end in itself. More often, unit root testing is a preliminary step, followed by cointegration testing, intended to guide final model specification. A third possibility is to specify a general vector autoregression model, then work to a more specific model by sequential testing and the imposition of parameter restrictions to obtain the simplest data-congruent model ‘fit …