New Introduction to Multiple Time Series Analysis
New Introduction to Multiple Time Series Analysis
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The aim of the paper is to estimate a macroeconomic model of the Czech economy which will be used for the investigation of impulse response function to domestic and external shocks and a macroeconomic development prediction will be compared with the real Czech economy development. The macroeconomic model uses a modification of the modelling strategy developed by Garratt, Lee, Pesaran and Shin (2006). The strategy provides a practical approach to incorporating theoretic long-run relationships of a small open economy through a structural vector error correction model (VECM). The basic macroeconomic framework is a core small open economy model consisting of five long-run relationships. This leads to five expected long-run equations: the relative purchasing power parity, the real money market equilibrium condition, the output gaps, the interest rate parity and the interest rate relationship - Fisher inflation parity. The data are quarterly and run from the first quarter 1996 to the fourth quarter of 2010. We are able to identify the long-run structure amongst those variables and to test over-identifying restrictions on the cointegrating vectors. We analyse the consequences of imposing the long-run restrictions for the impulse response functions. The responses of the macroeconomic variables have been investigated both for the domestic shocks. The estimated macroeconomic model has been used for the prediction of selected variables for next three quarters of 2011.