Testing Structural Hypotheses on Cointegration Vectors: A Monte Carlo Study
AbstractIn this paper, two tests for structural hypotheses on cointegration vectors are evaluated in a Monte Carlo study. The tests are the likelihood ratio test proposed by Johansen (1991) and the test for stationarity proposed by Kwiatkowski et al (1992). The analysis of the likelihood ratio test is extended with the inclusion of a Bartlett correction factor. Under circumstances common in empirical applications, all tests suffer from large size distortions and have low power to detect a false cointegration vector, but the Johansen (1991) test fares slightly better than the Kwiatkowski et al (1992) test. Applying a Bartlett correction factor in small samples improves to a large extent the likelihood ratio test.
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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2004:29.
Length: 31 pages
Date of creation: 17 Dec 2004
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Cointegration; Structural hypothesis; Monte Carlo simulation;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-16 (All new papers)
- NEP-ECM-2005-01-16 (Econometrics)
- NEP-ETS-2005-01-16 (Econometric Time Series)
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