Identification when data are nonstationary

• p(p-1) just identifying restrictions on the short-run parameters (equations)• r(r-1) just identifying restrictions on the long-run parameters (relations)

Three different aspects

Identifying restrictions

Generic identification:1.

2.

Just-, over-, and under-identification

Correct:

Incorrect:

Imposing restrictions on all cointegrating relations

The switching algorithm

Normalization:

Interpretation as the long-run reduced formExogeneity assumptions and the Phillips triangular form model

Example:

Just identitified cointegration relations