Institute of Mathematical Statistics Lecture Notes - Monograph Series

Cowles commission structural equation approach in light of nonstationary time series analysis

Cheng Hsiao

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We review the advancement of nonstationary time series analysis from the perspective of Cowles Commission structural equation approach. We argue that despite the rich repertoire nonstationary time series analysis provides to analyze how do variables respond dynamically to shocks through the decomposition of a dynamic system into long-run and short-run relations, nonstationarity does not invalid the classical concerns of structural equation modeling — identification and simultaneity bias. The same rank condition for identification holds for stationary and nonstationary data and some sort of instrumental variable estimators will have to be employed to yield consistency. However, nonstationarity does raise issues of inference if the rank of cointegration or direction of nonstationarity is not known a priori. The usual test statistics may not be chi-square distributed because of the presence of unit roots distributions. Classical instrumental variable estimators have to be modified to ensure valid inference.

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Hwai-Chung Ho, Ching-Kang Ing, Tze Leung Lai, eds., Time Series and Related Topics: In Memory of Ching-Zong Wei (Beachwood, Ohio, USA: Institute of Mathematical Statistics, 2006), 173-192

First available in Project Euclid: 28 November 2007

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Hsiao, Cheng. Cowles commission structural equation approach in light of nonstationary time series analysis. Time Series and Related Topics, 173--192, Institute of Mathematical Statistics, Beachwood, Ohio, USA, 2006. doi:10.1214/074921706000001030.

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