Abstract :
This note shows that the orthogonal shocks obtained by imposing a recursive structure
on the contemporaneous impacts of the errors in a vector-error correction
model ~VECM! are related to the orthogonal permanent-transitory shocks in a
Gonzalo and Ng ~2001, Journal of Economic Dynamics and Control 25, 1527–
1546! decomposition provided some of the variables in the system are weakly
exogenous+ Specifically, when there are as many weakly exogenous variables as
common trends and the weakly exogenous variables are ordered first, the orthogonal
shocks obtained directly from the VECM constitute a permanent-transitory
decomposition, and the permanent shocks are identical to those in the Gonzalo
and Ng decomposition+
