MODELLING TIME SERIES DATA OF MONETARY AGGREGATES USING I(2) AND I(1) COINTEGRATION ANALYSIS

  1. Takamitsu Kurita

Article first published online: 25 AUG 2011

DOI: 10.1111/j.1467-8586.2011.00400.x

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Kurita, T. (2011), MODELLING TIME SERIES DATA OF MONETARY AGGREGATES USING I(2) AND I(1) COINTEGRATION ANALYSIS. Bulletin of Economic Research. doi: 10.1111/j.1467-8586.2011.00400.x

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  1. Faculty of Economics, Fukuoka University, Japan.

*Faculty of Economics, Fukuoka University, 8-19-1 Nanakuma, Jonan-ku, Fukuoka, 814-0180 Japan. Email: tkurita@fukuoka-u.ac.jp. I am sincerely grateful to the editor and an anonymous referee for their helpful comments and suggestions. The draft of this paper was presented at the Japanese Economic Association Spring Meeting 2009 at Kyoto University. I would like to thank the commentator at the meeting, Ryuzo Miyao, for his constructive comments. I would also like to gratefully acknowledge Heino Bohn Nielsen for providing me with his Ox code for I(2) analysis. This work is supported by JSPS KAKENHI (19830111).

Publication History

  1. Article first published online: 25 AUG 2011

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Keywords:

  • broad money;
  • cointegrated vector autoregressive model;
  • I(1);
  • I(2);
  • maximum likelihood;
  • monetary base;
  • money multiplier
  • C32;
  • E51

ABSTRACT

The objective of this paper is to consider methodology for modelling time series data of monetary aggregates such as monetary base and broad money. A brief review is made with regard to the likelihood-based cointegration analysis of I(2) (integrated of order 2) data and I(2)-to-I(1) transformations. The paper then investigates procedures for econometric modelling of monetary aggregates, which are in general deemed to be I(2) variables analogous to price indices. It is shown that I(2)-to-I(1) transformations centering on a money multiplier play an important role in the modelling procedures. Finally, the study presents an empirical illustration of the proposed methodology using monetary aggregate data from Japan.

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