Determining the number of cointegrating relations under rank constraints
AbstractThis paper proposes likelihood-based procedures for determining the number of cointegrating vectors in the presence of constraints on the cointegration rank. The tests can be applied when a priori information suggests a lower bound on the number of common stochastic trends in the system. The likelihood ratio trace and and lambda max tests are obtained as special cases of the present setup. The tests are easy to implement and have comparable asymptotic power with respect to the trace test; it is also shown that the constrained tests are more powerful for some local alternatives.
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Bibliographic InfoPaper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0109.
Length: 31 pages
Date of creation: Jul 2001
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More information through EDIRC
Cointegration rank; Likelihood ratio; Trace test; Asymptotic power;
Find related papers by JEL classification:
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - 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
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