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Testing Cointegration Rank in Large Systems

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Author Info
Chen Pu (Universität Bielefeld → Fakultät für Wirtschaftswissenschaften)
Hsiao Chihying (Universität Bielefeld → Fakultät für Wirtschaftswissenschaften)

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Abstract

In this paper we investigate the possibility of the application of subsampling procedure for testing cointegration relations in large multivariate systems. The subsampling technique is applied to overcome the difficulty of nonstandard distribution and nuisance parameters in testing for cointegration rank without an explicitly formulated structural model. The contribution in this paper is twofold: theoretically this paper shows that the subsampling testing procedure is consistent and asymptotically most powerful; practically this paper demonstrates that the subsampling procedure can be applied to determine the cointegration rank in large scale models, where the standard procedures hits already its limit. Especially for the cases of few stochastic trends in a system, the subsampling procedure shows robust and reliable results.

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Publisher Info
Paper provided by EconWPA in its series Econometrics with number 0504002.

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Length: 30 pages
Date of creation: 08 Apr 2005
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Handle: RePEc:wpa:wuwpem:0504002

Note: Type of Document - pdf; pages: 30
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Web page: http://129.3.20.41

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Related research
Keywords: Cointegration; Large System; Nonparametric Tests; Subsampling; PPP;

Find related papers by JEL classification:
C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Other
C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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  1. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January. [Downloadable!] (restricted)
    Other versions:
  2. Phillips, P C B, 1991. "Optimal Inference in Cointegrated Systems," Econometrica, Econometric Society, vol. 59(2), pages 283-306, March. [Downloadable!] (restricted)
    Other versions:
  3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  4. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January. [Downloadable!] (restricted)
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