Using recently developed Monte Carlo methodology, this paper investigates the effect of dynamics and simultaneity on the finite sample properties of maximum likelihood and instrumental variables statistics for testing both nested and non-nested hypotheses. Numerical-analytical approximations...

This paper develops an empirically constant, data-coherent, error cor­rection model for inflation in Australia. The level of consumer prices is a mark-up over domestic and import costs, with adjustments for dynamics and relative aggregate demand. We address issues of cointegration, general to...

Cross-country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of...

This paper proposes a tripartite framework of design, evaluation, and post-evaluation analysis for generating and interpreting economic forecasts. This framework's value is illustrated by re-examining mean square forecast errors from dynamic models and nonlinearity biases from empirical...

This paper considers the statistical and econometric effect that fixed n-period phase-averaging has on time series generated by some simple dynamic processes. We focus on the variance and autocorrelation of the data series and of the disturbance term for levels and difference equations involving...

Even though pieces of empirical evidence individually may corroborate an economic theory, their joint existence may refute that same theory. We discuss examples concerning testing for omitted variables, simultaneity, and rational expectations in the context of general-to-simple versus...

"Monte Carlo experimentation in econometrics helps 'solve' deterministic problems by simulating stochastic analogues in which the analytical unknowns are reformulated as parameters to be estimated." (Hendry (1980) With that in mind, Monte Carlo studies may be divided operationally into three...

Using annual data from Friedman and Schwartz (1982), Hendry and Ericsson (1991a) developed an empirical model of the demand for broad money in the United Kingdom over 1878-1975. We update that model over 1976-1993, accounting for changed data definitions and clarifying the concept of constancy....

A cointegration test statistic based upon estimation of an error cor­rection model can be approximately normally distributed when no cointegration is present. By contrast, the equivalent Dickey-Fuller statistic applied to residuals from a static relationship has a non-standard asymptotic...

This paper provides cumulative distribution functions, densities, and finite sample critical values for the single-equation error correction statistic for testing cointegration. Graphs and response surfaces summarize extensive Monte Carlo simulations and highlight simple dependencies of the...