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Volatility and Time Series EconometricsEssays in Honor of Robert Engle$
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Tim Bollerslev, Jeffrey Russell, and Mark Watson

Print publication date: 2010

Print ISBN-13: 9780199549498

Published to Oxford Scholarship Online: May 2010

DOI: 10.1093/acprof:oso/9780199549498.001.0001

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The Long Run Shift‐Share: Modeling the Sources of Metropolitan Sectoral Fluctuations *

The Long Run Shift‐Share: Modeling the Sources of Metropolitan Sectoral Fluctuations *

(p.13) 2 The Long Run Shift‐Share: Modeling the Sources of Metropolitan Sectoral Fluctuations*
Volatility and Time Series Econometrics

N. Edward Coulson

Oxford University Press

This chapter investigates the sources of sectoral fluctuations in metropolitan economies. This delineation has four steps. First, a general ‘city-industry’ vector autoregression (VAR) is constructed, which accounts for both short and long run fluctuations at a number of different levels of aggregation. Second, a large number of ‘traditional’ models of regional economics (including the two cointegration analyses of the preceding paragraph) are shown to be reductions of this general VAR, although a by-product of the analysis is that it is not likely that all of these reductions can be applied simultaneously. The restrictions implied by the restrictions of the traditional model are tested using data from 10 sectors and five cities. None is found to be universally applicable, though some do less violence to the data than others. Given these results, the fourth step of estimating the complete VARs (for each city industry) is undertaken under four different assumptions. The overall result is that the traditional models are unsatisfactory because they neglect the role of local supply shocks, although this neglect does more damage in ‘short run’ models than in those that invoke cointegration.

Keywords:   sectoral fluctuations, metropolitan economies, vector autoregression

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