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A Small Sample Correction for the Test of Cointegrating Rank in the Vector Autoregressive Model

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Author Info
Soren Johansen () (University of Copenhagen, Denmark)

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Abstract

With the cointegration formulation of economic long-run relations the test for cointegrating rank has become a useful econometric tool. The limit distribution of the test is often a poor approximation to the finite sample distribution and it is therefore relevant to derive an approximation to the expectation of the likelihood ratio test for cointegration in the vector autoregressive model in order to improve the finite sample properties. The correction factor depends on moments of functions of the random walk, which are tabulated by simulation, and functions of the parameters, which are estimated. From this approximation we propose a correction factor with the purpose of improving the small sample performance of the test. The correction is found explicitly in a number of simple models and its usefulness is illustrated by some simulation experiments. Copyright The Econometric Society 2002.

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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 70 (2002)
Issue (Month): 5 (September)
Pages: 1929-1961
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Handle: RePEc:ecm:emetrp:v:70:y:2002:i:5:p:1929-1961

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  1. van Tilburg, Aad & Kuiper, W. Erno & Swinkels, Rob, 2006. "Market Performance of Potato Auctions in Bhutan," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25520, International Association of Agricultural Economists. [Downloadable!]
  2. Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2008. "Informality and Macroeconomic Fluctuations," IZA Discussion Papers 3519, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Ahlgren, Niklas & Antell, Jan, 2009. "The Power of Bootstrap Tests of Cointegration Rank with Financial Time Series," Working Papers 541, Hanken School of Economics. [Downloadable!]
  4. Helmut LÜTKEPOHL, 2004. "Recent Advances in Cointegration Analysis," Economics Working Papers ECO2004/12, European University Institute. [Downloadable!]
  5. Joanna Beza-Bojanowska, 2009. "Behavioral and Permanent Zloty/Euro Equilibrium," Central European Journal of Economic Modelling and Econometrics, Polish Academy of Sciences, The Lodz Branch, vol. 1(1), pages 35-55, March. [Downloadable!]
  6. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2005. "Testing for Long Memory and Nonlinear Time Series: A Demand for Money Study," Trinity Economics Papers tep20021, Trinity College Dublin, Department of Economics. [Downloadable!]
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