ILLUSTRATION OF VECTOR AUTOREGRESSION-VAR WITH POSSIBLY INTEGRATED PROCESSES: APPLICATION TO THE BUDGET REVENUES, EXPENDITURES AND INDUSTRIAL OUTPUT
AbstractIn a VAR estimation the preference for variables to be stationary exists. The tests for cointegration ranks in Johansen type of ECM are sensitive to the values of the parameters in finite samples and hence not very reliable for economic time series consequently and thus, the strategy for testing economic hypothesis conditioned on the estimation of a unit root, a cointegrating rank and cointegrating vectors may suffer from severe pretest biases.The significance of the fiscal synchronization hypothesis in Macedonia shows that the Government in the period 1995-2004 was planning the fiscal strategy in a cost benefit framework by simultaneously comparing the marginal revenues with the marginal costs. However, a causality relationship between the industrial output and the Government fiscal operations was not significant.
Lutkepohl, Helmut and Reimers, â€œImpulse response analysis of cointegrated systemsâ€ Journal of economic Dynamics and Control (1992).
Enders, â€œApplied Econometric Tiem Seriesâ€ John Wiley (1995).
Toda and Yamamoto, â€œStatistical inference in VAR with possibly integrated processesâ€ Journal of Econometrics (1995)
Rambaldi and Doran, â€œTesting for Granger non-causality in cointegrated systemsâ€ Working papers in econometrics and applied statistics 1996. 17
Hoppner, â€œA VAR Analysis of the effects of fiscal policy in Germanyâ€ Universityof Bonn 2001.
Demirbas, â€œCointegration analysis-causality testing and Wagnerâ€™s Law: the case of Turkey, 1995-1990â€ University of Leicester (1999).
Hatemi and Shukur, â€œThe causal nexus of Government spending and revenue in Finland: A bootstrap approachâ€ Lund University and Goteborg University (1998).
Aziz, Habibullah, Saini, Azali, â€œTesting causal relationship between tax revenues
and government spending in Malaysiaâ€ FEP Seminar (2000).
Sims, Christopher, â€œMacroeconomics and realityâ€ Econometrica 48 (Jan. 1980).
Nikolov, Robert, Stojkov and Bogov, â€œAnalysis of the Macedonian industrial
production index in 2004â€, Government of Macedonia internal document (2004).