Comovements in Large Systems
AbstractIn this paper we study various methods for detecting the co integrating rank as the number of variables gets large. We show that the use of standard tools will always lead to misleading inferences in such settings due to excessive size distortions. Particularly the LR test tends to produce too much cointegration. We introduce a new test statistic that displays excellent size properties in both small and large systems. In addition we propose a model selection procedure for selecting the cointegrating rank. A new criterion outperforms the standard information-theoretic criteria (AIC, BIC).
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1994065.
Date of creation: 01 Nov 1994
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cointegration; information criteria; large systems; likelihood ratio tests;
Other versions of this item:
- Gonzalo, Jesús & Pitarakis, Jean-Yves, . "Comovements in large systems," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/5825, Universidad Carlos III de Madrid.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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- Godbout, M.J. & Van Norden, S., 1996. "Unit-Root Test and Excess Returns," Working Papers 96-10, Bank of Canada.
- Lee, Tae-Hwy & Tse, Yiuman, 1996. "Cointegration tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 73(2), pages 401-410, August.
- Gonzalo, Jesús & Pitarakis, Jean-Yves, .
"Specification via model selection in vector error correction models,"
Open Access publications from Universidad Carlos III de Madrid
info:hdl:10016/754, Universidad Carlos III de Madrid.
- Gonzalo, Jesus & Pitarakis, Jean-Yves, 1998. "Specification via model selection in vector error correction models," Economics Letters, Elsevier, vol. 60(3), pages 321-328, September.
- Franses, Philip Hans & Kloek, Teun & Lucas, Andre, 1998. "Outlier robust analysis of long-run marketing effects for weekly scanning data," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 293-315, November.
- Marie-Josée Godbout & Simon van Norden, 1997. "Reconsidering Cointegration in International Finance: Three Case Studies of Size Distortion in Finite Samples," Working Papers 97-1, Bank of Canada.
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