Local power of likelihood ratio tests for the cointegrating rank of a VAR process
AbstractLikelihood ratio (LR) tests for the cointegrating rank of a vector autoregressive (VAR) process have been developed under different assumptions regarding deterministic terms. For instance, nonzero mean terms and linear trends have been accounted for in some of the tests. In this paper we provide a general framework for deriving the local power properties of these tests. Thereby it is possible to assess the virtue of utilizing varying amounts of prior information by making assumptions regarding the deterministic terms. One interesting result from this analysis is that if no assumptions regarding the specic form of the mean term are made while a linear trend is excluded then a test is available which has the same local power as an LR test derived under a zero mean assumption. --
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Bibliographic InfoPaper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1997,58.
Date of creation: 1997
Date of revision:
Other versions of this item:
- Saikkonen, Pentti & L tkepohl, Helmut, 1999. "Local Power Of Likelihood Ratio Tests For The Cointegrating Rank Of A Var Process," Econometric Theory, Cambridge University Press, vol. 15(01), pages 50-78, February.
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