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Simulating small-sample properties of the maximum likelihood cointegration method : estimation and testing

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  • Tor Jacobson

    (Department of Statistics, Uppsala University, Sweden)

Abstract

This paper analyzes - using Monte Carlo simulation - small-sample properties of the maximum likelihood cointegration method for estimation and inference in cointegrated systems. The simulations of a bivariate system concentrate on the following; the estimator of the cointegrating vector; the trace test for determining cointegrating rank, and the likelihood ratio and Wald tests for linear restrictions on the cointegrating vector: Furthermore, we introduce autoregressive conditional heteroscedasticity, as well as multivariate non-normality in the form of excess skewness and kurtosis, in the error process. All in all, the results suggest that the maximum likelihood method displays desirable features as long as the samples are of reasonable sizes.

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Bibliographic Info

Article provided by Finnish Economic Association in its journal Finnish Economic Papers.

Volume (Year): 8 (1995)
Issue (Month): 2 (Autumn)
Pages: 96-107

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Handle: RePEc:fep:journl:v:8:y:1995:i:2:p:96-107

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  1. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc.
  2. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 253-77, August.
  3. Allen Fleishman, 1978. "A method for simulating non-normal distributions," Psychometrika, Springer, vol. 43(4), pages 521-532, December.
  4. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  5. Johansen, Soren, 1992. "Cointegration in partial systems and the efficiency of single-equation analysis," Journal of Econometrics, Elsevier, vol. 52(3), pages 389-402, June.
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Cited by:
  1. Jacobson, Tor & Larsson, Rolf, 1996. "Bartlett Corrections in Cointegration Testing," Working Paper Series in Economics and Finance 134, Stockholm School of Economics.
  2. Eriksson , Åsa, 2004. "Testing Structural Hypotheses on Cointegration Vectors: A Monte Carlo Study," Working Papers 2004:29, Lund University, Department of Economics.
  3. Larsson, Rolf & Villani, Mattias, 2001. "A distance measure between cointegration spaces," Economics Letters, Elsevier, vol. 70(1), pages 21-27, January.
  4. Annika Alexius, 1997. "Import prices and nominal exchange rates in Sweden," Finnish Economic Papers, Finnish Economic Association, vol. 10(2), pages 99-107, Autumn.
  5. Richard G. Anderson & Hailong Qian & Robert H. Rasche, 2006. "Analysis of panel vector error correction models using maximum likelihood, the bootstrap, and canonical-correlation estimators," Working Papers 2006-050, Federal Reserve Bank of St. Louis.

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