Estimating intertemporal quadratic adjustment cost models with integrated processes: a VAR approach
AbstractThis paper extends the existing literature on linear quadratic adjustment cost (LQAC) models under rational expectations to the inferential issue arising when: (I) agents optimize with respect to a vector of endogenous variables; (II) the behavioral equation stemming from the agent's optimization problem are specified as 'exact' rational expectations models; (III) the stochastic processes involved are integrated of order one. We focus on estimation in e 'full-information' framework, and the key assumption is that agents compute expectations through a cointegrated VAR (CVAR) for the observable variables.
How to Cite
Fanelli, L. (1998). Estimating intertemporal quadratic adjustment cost models with integrated processes: a VAR approach. Statistica, 58(3), 523–345. https://doi.org/10.6092/issn.1973-2201/1096