1. The common trends representation

5. Measuring common driving trends

6. From Chapter 2: With long-run price homogeneity:

7. Illustrations

10. Just-identification of alpha orthogonal The transformation matrix:

14. Is a weakly exogenous variable a common stochastic trend? The MA representation under the weak exogeneity restriction

19. Assessing the economic scenario

20. Where does the nonstationarity of the hypothetical relations come from?

21. The income – inflation relationship: The nonstationarity of real interest rates:

22. Imposing exclusion restrictions on common trends If nominal money stock and price levels contain just one I(2) trend, then Inflation should only be affected by one stochastic trend. This can be achieved by a linear transformation. Example 1:

23. Example 2: Example 3: