Dynamic Econometrics for Empirical Macroeconomic Modelling

Book excerpt: In this textbook, intended for master and PhD students in economics, the duality between the equilibrium concept used in dynamic economic theory, and the stationarity of economic variables is explained, and used in the presentation of econometric methods, for single equations models and for system of equations such as VARs, recursive models and simultaneous equations models. The necessary background in the mathematics of difference equations, is provided in a separate chapter. The same mathematics is used to extend the econometric methodology to non-stationary time series, which is typical of macroeconomic data. The book covers the main methods for specification and estimation of cointegrated systems. The book also contains a separate chapter on exogeneity, in the context of estimation, policy analysis and forecasting. The book also has a separate chapter about automatic (computer based) variable selection, and how it can aid in the specification of an empirical macroeconomic model. The final chapter of the book contains a common framework for model based economic forecasting. The challenges to forecasting presented by the broad sense non-stationarity of real world economic variables is discussed, as well as remedies that can be used in practice to robustify model based forecasts. There are end of chapter exercises, which are both theoretical and practical, and there are solution proposals to all exercises.