Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Kansas City
Research Working Paper
Vector rational error correction
Sharon Kozicki
Peter A. Tinsley

Systems of forward-looking linear decision rules can be formulated as vector "rational" error correction models. The closed-form solution of the restricted error corrections is derived, and a full-information estimator is suggested. The error correction format indicates that the assumptions of convex adjustment costs and rational expectations impose different types of a priori restrictions on the dynamic structure of the error corrections. An empirical model of the producer decision rule for capital investment illustrates that the data rejects dynamic restrictions imposed by a standard model of adjustment costs but supports a more general description of convex frictions.

Download Full text
Cite this item
Sharon Kozicki & Peter A. Tinsley, Vector rational error correction, Federal Reserve Bank of Kansas City, Research Working Paper 98-03, 1998.
More from this series
JEL Classification:
Subject headings:
Keywords: Vector autoregression ; Rational expectations (Economic theory)
For corrections, contact Lu Dayrit ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal