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Tests Against Stationary and Explosive Alternatives in Vector Autoregressive Models

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Author Info

  • Ahlgren, Niklas

    ()
    (Swedish School of Economics and Business Administration)

  • Nyblom, Jukka

    ()
    (University of Joensuu)

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    Abstract

    The article proposes new tests for the number of unit roots in vector autoregressive models based on the eigenvalues of the companion matrix. Both stationary and explosive alternatives are considered. The limiting distributions of test statistics depend only on the number of unit roots. Size and power are investigated and it is found that the new test against stationary alternatives compares favorably with the widely used likelihood ratio test for the cointegrating rank. The powers are prominently higher against explosive than stationary alternatives. Some empirical examples are provided to show how to use the new tests with real data.

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    Bibliographic Info

    Paper provided by Hanken School of Economics in its series Working Papers with number 511.

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    Length: 38 pages
    Date of creation: 14 Dec 2005
    Date of revision:
    Handle: RePEc:hhb:hanken:0511

    Note: This paper is published as: Ahlgren, Niklas and Nyblom, Jukka (2008), 'Tests against Stationary and Explosive Alternatives in Vector Autoregressive Models', Journal of Time Series Analysis, 29, 421-443.
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    Postal: Hanken School of Economics, Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland
    Phone: +358-9-431 331
    Fax: +358-9-431 33 333
    Web page: http://www.hanken.fi
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    Related research

    Keywords: Asymptotic local power; Cointegration; Companion matrix; Unit root;

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    References

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    1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    2. Nielsen, Bent, 2001. "The Asymptotic Distribution of Unit Root Tests of Unstable Autoregressive Processes," Econometrica, Econometric Society, vol. 69(1), pages 211-19, January.
    3. Katarina Juselius & Zorica Mladenovic, 2002. "High Inflation, Hyperinflation and Explosive Roots: The Case of Yugoslavia," Discussion Papers 02-23, University of Copenhagen. Department of Economics.
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