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Johansen cointegration rank tests under local alternative hypotheses when related drift or linear trend is not dependent upon sample size in VARs

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  • Mitsuhiro Odaki
  • Min Li

Abstract

This paper discusses Johansen’s likelihood ratio tests to determine the cointegration rank under local alternative hypotheses in the vector autoregressive models (VARs) in which drift or linear trend related to the hypotheses is not dependent upon the sample size, and evaluates related asymptotic properties. We show that the test statistics diverge at the rate of the sample size even under one of local alternative hypotheses, owing to the existence of such a deterministic term. This implies that under our situations, the tests are far more powerful than those under the conventional local alternative hypotheses.

Suggested Citation

  • Mitsuhiro Odaki & Min Li, 2019. "Johansen cointegration rank tests under local alternative hypotheses when related drift or linear trend is not dependent upon sample size in VARs," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 48(23), pages 5839-5849, December.
    • Handle: RePEc:taf:lstaxx:v:48:y:2019:i:23:p:5839-5849
    DOI: 10.1080/03610926.2018.1522350
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