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Authors:Craig F Ansley
Institution:Graduate School of Business, University of Chicago , Chicago , IL , 60637
Abstract:A vector autoregression is a reduced-form representation and therefore would be expected to change when any structural equation in the system changes, regardless of whether economic decisions are forward-looking. Even so, a dynamic simulation of a model with unit roots will exhibit large cumulative errors, making it difficult to detect whether a structural change has indeed occurred.
Keywords:Common factor  Common index  Cross-correlation  International business cycle  Serial correlation
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