Re: Reply to B. Mitchell, P. Davidson

[BILL MITCHELL <ECWFM@xxxxxxxxxxxxxxxxxxx>]

Paul asks:

"Cointergation of first differences implies structural relationships among
rates of growth; with second differences it implies relationships between
rates of change of rates of change, i.e., acceleration of economic varibles.
Why can't there be cointegration among accelerating economic variables?
Or even cointegration among rates of change in acceleration of variables (i.e.,
3rd differences)? etc. Etc. etc."


the technical answer is that there can be. all that is required is that
the processes in whatever order of differencing be of the same order of
integration. I mentioned an Applied Economics article (written with Martin
Watts - 1991 - not the same one I mentioned yesterday in relation to unit
roots and persistence BTW).

in that article on Okuns Law we argued that not only the current capacity
utilisation affects the un gap, but also the longer term growth of capital
stock, it turned at that capital stock was I(2) so the rate of growth (in logs)
was I(1) and cointegrated with the other I(I) level variables in the model.

so if there is economic meaning and the diagnostics hold up then your question
is answered with a yes.

kind regards
bill
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Have a good day! Paul
email address: PB108928@xxxxxxxxxxxxxx
fax# (615)974-1686
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