Working Paper: CEPR ID: DP265
Authors: Mark Salmon
Abstract: The paper considers the conditions under which a system of dynamic equations will be consistent with some prespecified multivariate equilibrium specification. Connections are also drawn between what is known as 'the internal model principle' in the design of robust linear feedback rules and recent developments in the analysis of multivariate error correction models and the theory of co-integration. This approach not only clarifies and generalizes our understanding of error correction systems, but also suggests a relatively simple method for determining whether a given dynamic system satisfies the conditions for representation as an error correction specification.
Keywords: error correction models; equilibrium specification; cointegration; internal model principle
JEL Codes: 212
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| multivariate dynamic model (C39) | prescribed dynamic restriction (C69) |
| equilibrium errors must have a zero mean (C20) | error correction properties (C20) |
| internal model principle (C59) | equilibrium specification integrated into dynamic system (D50) |
| dynamic adjustment of a system (C61) | equilibrium behavior (D50) |