A Monte Carlo Study on the Pitfalls in Determining Deterministic Components in Cointegrating Models
AbstractIn this paper we examine, by means of Monte Carlo simulation, the properties of the so called 'Pantula principle' for the simultaneous determination of rank and deterministic components in a vector error correction model. Examining the five models contained within the Johansen methodology, we find that the 'Pantula principle' is heavily biased towards choosing model 3 (unrestriced constant) when model 4 (restricted trend) is the true one. We suggest a modification that reduces this bias to an important extent
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2002:3.
Length: 13 pages
Date of creation: 05 Feb 2002
Date of revision:
Publication status: Published in Journal of Macroeconomics, 2005, pages 691-703.
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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Cointegration; Deterministic components; Monte Carlo simulation;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-10 (All new papers)
- NEP-ECM-2002-02-22 (Econometrics)
- NEP-ETS-2002-02-15 (Econometric Time Series)
- NEP-PKE-2002-02-15 (Post Keynesian Economics)
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