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On the Distribution of Likelihood Ratio Test Statistics for Cointegration Rank

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Author Info

  • Bent Nielsen

Abstract

This paper analyses the likelihood ratio test for the hypothesis of reduced cointegration rank in a Gaussian vector autoregressive model. The usual asymptotic distribution typically gives rather large size distortions. This is explained by the fact that the asymptotic distribution of the likelihood ratio test statistic varies across the parameter space. A much improved distribution approximation can be obtained using local asymptotic theory. The idea is discussed for some low dimensional examples.

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File URL: http://www.tandfonline.com/doi/abs/10.1081/ETC-120028834
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Econometric Reviews.

Volume (Year): 23 (2004)
Issue (Month): 1 ()
Pages: 1-23

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Handle: RePEc:taf:emetrv:v:23:y:2004:i:1:p:1-23

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Related research

Keywords: Bartlett corrections; Cointegration; Finite sample results; Lack of similarity; Local asymptotics;

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Cited by:
  1. Nielsen, Bent, 2010. "Analysis Of Coexplosive Processes," Econometric Theory, Cambridge University Press, vol. 26(03), pages 882-915, June.
  2. Ahlgren, Niklas & Antell, Jan, 2006. "Bootstrap and Fast Double Bootstrap Tests of Cointegration Rank with Financial Time Series," Working Papers 519, Hanken School of Economics.
  3. Bent Nielsen & J. James Reade, 2004. "Simulating Properties of the Likelihood Ratio Test for a Unit Root in an Explosive Second Order Autoregression," Economics Series Working Papers 2004-W24, University of Oxford, Department of Economics.
  4. Giuseppe Cavaliere & Luca Fanelli & Paolo Paruolo, 2009. "Tests for cointegration rank and choice of the alternative," Statistical Methods and Applications, Springer, vol. 18(2), pages 169-191, July.
  5. Tang, Chor-Foon & Lau, Evan, 2011. "The Behaviour of Disaggregated Public Expenditures and Income in Malaysia," Review of Applied Economics, Review of Applied Economics, vol. 7(1-2).
  6. Paruolo Paolo, 2005. "Design of vector autoregressive processes for invariant statistics," Economics and Quantitative Methods qf0504, Department of Economics, University of Insubria.

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