This paper derives a method for estimating and testing the Linear Quadratic Adjustment Cost (LQAC) model when the target variable and some of the forcing variables follow I(2) processes. Based on a forward-looking error-correction formulation of the model it is shown how to obtain strongly...

In this paper we demonstrate a new way of testing the linear quadratic adjustment cost (LQAC) model under rational expectations. We illustrate how the parameter restrictions arising from this model can be formally specified and we use these restrictions to extend the technique of Campbell and...