Impulse response analysis in infinite order cointegrated vector autoregressive processes

Estimation of cointegrated systems via autoregressive approximation is considered in the framework developed by Saikkonen (1992, Econometric Theory 8, 1-27). The asymptotic properties of the estimated coefficients of the autoregressive error correction model (ECM) and the pure vector autoregressive (VAR) representations are derived under the assumption that the autoregressive order goes to infinity with the sample size. These coefficients are often used for analyzing the relationships between the variables; therefore, they are important for applied work. Tests for linear restrictions on the coefficients of both the ECM and the pure VAR representation are considered under the present assumptions. It is found that they have limiting x2 distributions. Tests are also derived under the assumption that the number of restrictions goes to infinity with the sample size.

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Exports as a Determinant of Inflation in Kenya: Disaggregated Econommetric Analysis

European Scientific Journal ESJ ◽

10.19044/esj.2017.v13n10p417 ◽

2017 ◽

Vol 13 (10) ◽

pp. 417

Author(s):

Evans Ovamba Kiganda ◽

Scholastica Adhiambo ◽

Nelson Obange

Keyword(s):

Time Series ◽

Central Bank ◽

Granger Causality ◽

Impulse Response ◽

Response Analysis ◽

Vector Autoregressive ◽

Impulse Response Analysis ◽

Long Run ◽

The Government ◽

The Relationship

The purpose of this study was to examine exports as a determinant of inflation in Kenya: A disaggregated econometric analysis with specific objectives of establishing the relationship between domestic exports and inflation in Kenya and determining the relationship between re - exports and inflation in Kenya. This was occasioned by inconclusive and incomprehensive analysis on the relationship between exports and inflation given mixed results and failure by scholars to disaggregate total exports into domestic exports and re-exports. Correlation research design was employed using monthly time series obtained from Central Bank of Kenya (CBK) data spanning 132 months from January 2005 to December 2015.Vector Autoregressive (VAR) techniques of cointegration, Granger causality and impulse response analysis were employed. Results indicated a significant positive and negative long run relationship between domestic exports and re- exports with inflation in Kenya respectively that were supported by the impulse response analysis. A unidirectional causality running from domestic exports to inflation and re-exports to inflation was also established. The study concluded that domestic exports and re-exports determine inflation in Kenya with domestic exports having greater influence and therefore recommended that the government of Kenya needs to advocate for a trade policy that aims at reducing exports of domestically produced products and increase re-exports. This will ensure that only surplus is exported to reduce shortage of domestically produced commodities hence a reduction in price for the products.

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