Interpreting Cointegrated Models

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Interpreting Cointegrated Models

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Title: Interpreting Cointegrated Models
Author: Shiller, Robert; Campbell, John

Note: Order does not necessarily reflect citation order of authors.

Citation: Campbell, John Y. and Robert J. Shiller. 1988. Interpreting cointegrated models. Journal of Economic Dynamics and Control 12(2-3): 505-522.
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Abstract: Error-correction models for cointegrated economic variables are commonly interpreted as reflecting partial adjustment of one variable to another. We show that error-correction models may also arise because one variable forecasts another. Reduced-form estimates of error-correction models cannot be used to distinguish these interpretations. In an application, we show that the estimated coefficients in the Marsh-Merton (1987) error-correction model of dividend behavior in the stock market are roughly implied by a near-rational expectations model wherein dividends are persistent and prices are disturbed by some persistent random noise. Their results thus do not demonstrate partial adjustment or 'smoothing' by managers, but may reflect little more than the persistence of dividends and the noiseness of prices.
Published Version: http://dx.doi.org/10.1016/0165-1889(88)90053-X
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:3221492

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  • FAS Scholarly Articles [7594]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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