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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Exogeneity, Cointegration, and Economic Policy Analysis
Neil R. Ericsson; David F. Hendry; Grayham E. Mizon
1998-616  (June 1998)

Abstract:  This overview examines conditions for reliable economic policy analysis based on econometric models, focusing on the econometric concepts of exogeneity, cointegration, causality, and invariance. Weak, strong, and super exogeneity are discussed in general; and these concepts are then applied to the use of econometric models in policy analysis when the variables are cointegrated. Implications follow for model constancy, the Lucas critique, equation inversion, and impulse response analysis. A small money-demand model for the United Kingdom illustrates the main analytical points. This paper then summarizes the other articles in this special section of the Journal of Business and Economic Statistics on "Exogeneity, Cointegration, and Economic Policy Analysis."

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Causality, equation inversion, impulse response analysis, invariance, Lucas critique, money demand

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