A Nonlinear IV Likelihood-Based Rank Test for Multivariate Time Series and Long Panels
AbstractA test for the rank of a vector error correction model (VECM) or panel VECM based on the well-known trace test is proposed. The proposed test employs instrumental variables (IV's) generated by a class of nonlinear functions of the estimated stochastic trends of the VECM under the null. The test improves the standard trace test by replacing the non-standard critical values with chi-squared critical values. Extending the result to the panel VECM case, the test is robust to cross-sectional correlation of the disturbances. With this test, I extend earlier research using nonlinear IV's for unit root testing. However, the optimal instrument in the univariate case is not admissable in the more general multivariate case. The chi-squared result suggests that IV tests may be used to replace limits of other standard tests with integrated time series that are given by nonstandard stochastic integrals, even without a panel with which to pool tests.
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Bibliographic InfoPaper provided by Department of Economics, University of Missouri in its series Working Papers with number 1001.
Length: 22 pgs.
Date of creation: 30 Jan 2010
Date of revision:
VECM; panel VECM; cointegrating rank; trace test; nonlinear instruments;
Other versions of this item:
- Miller J. Isaac, 2010. "A Nonlinear IV Likelihood-Based Rank Test for Multivariate Time Series and Long Panels," Journal of Time Series Econometrics, De Gruyter, vol. 2(1), pages 1-38, September.
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-ECM-2010-07-10 (Econometrics)
- NEP-ETS-2010-07-10 (Econometric Time Series)
- NEP-ORE-2010-07-10 (Operations Research)
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- Antonia Arsova & Deniz Dilan Karaman Oersal, 2013. "Likelihood-based panel cointegration test in the presence of a linear time trend and cross-sectional dependence," Working Paper Series in Economics 280, University of Lüneburg, Institute of Economics.
- Hanck, Christoph & Demetrescu, Matei & Tarcolea, Adina, 2012. "IV-Based Cointegration Testing in Dependent Panels with Time-Varying Variance," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62072, Verein für Socialpolitik / German Economic Association.
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