Error correction mechanisms and short-run expectations
By: Angelos Antzoulatos.
Contributors: Antzoulatos, Angelos A.; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 10; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 10.
Publisher: Federal Reserve Bank of New York
Published: 1996
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Econometrics.; Consumption (Economics) -- United States -- Econometric models.
Description: "Reflecting the nature of economic decisions, the error correction mechanism (ECM) in the error-correction representation of a system of co-integrated variables may arise from forward-looking behavior.  In such a case, the estimated ECM coefficients may misleadingly appear to be insignificant or to have the opposite-than-expected sign if the variables in the error-correction representation do not adequately capture short-run expectations.  This paper explores the nature of this problem with a theoretical model for consumption and demonstrates how severe the problem can be with U.S.  data.  Because the conditions for similar erroneous inferences are likely to apply to many other settings, the paper also recommends a reexamination of the evidence in cases where the ECM appears to be insignificant or to display the &#147;wrong&#148; sign"--Federal Reserve Bank of New York web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/28/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.