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Model selection criteria for the leads-and-lags cointegrating regression

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  • Choi, In
  • Kurozumi, Eiji

Abstract

In this paper, Mallows’ (1973)Cp criterion, Akaike’s (1973) AIC, Hurvich and Tsai’s (1989) corrected AIC and the BIC of Akaike (1978) and Schwarz (1978) are derived for the leads-and-lags cointegrating regression. Deriving model selection criteria for the leads-and-lags regression is a nontrivial task since the true model is of infinite dimension. This paper justifies using the conventional formulas of those model selection criteria for the leads-and-lags cointegrating regression. The numbers of leads and lags can be selected in scientific ways using the model selection criteria. Simulation results regarding the bias and mean squared error of the long-run coefficient estimates are reported. It is found that the model selection criteria are successful in reducing bias and mean squared error relative to the conventional, fixed selection rules. Among the model selection criteria, the BIC appears to be most successful in reducing MSE, and Cp in reducing bias. We also observe that, in most cases, the selection rules without the restriction that the numbers of the leads and lags be the same have an advantage over those with it.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 169 (2012)
Issue (Month): 2 ()
Pages: 224-238

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Handle: RePEc:eee:econom:v:169:y:2012:i:2:p:224-238

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Web page: http://www.elsevier.com/locate/jeconom

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Keywords: Cointegration; Leads-and-lags regression; AIC; Corrected AIC; BIC; Cp;

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Cited by:
  1. Vogelsang, Timothy J. & Wagner, Martin, 2014. "Integrated modified OLS estimation and fixed-b inference for cointegrating regressions," Journal of Econometrics, Elsevier, vol. 178(2), pages 741-760.
  2. Hadri, Kaddour & Kurozumi, Eiji & Rao, Yao, 2013. "Novel Panel Cointegration Tests Emending for Cross-Section Dependence with N Fixed," Discussion Papers 2013-12, Graduate School of Economics, Hitotsubashi University.
  3. Jack R. Rogers, 2013. "Monetary Transmission to UK Retail Mortgage Rates before and after August 2007," Discussion Papers 1307, Exeter University, Department of Economics.

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