Bootstrap determination of the co-integration rank in VAR models
This paper discusses a consistent bootstrap implementation of the likelihood ratio [LR] co-integration rank test and associated sequential rank determination procedure of Johansen (1996). The bootstrap samples are constructed using the restricted parameter estimates of the underlying VAR model which obtain under the reduced rank null hypothesis. A full asymptotic theory is provided which shows that, unlike the bootstrap procedure in Swensen (2006) where a combination of unrestricted and restricted estimates from the VAR model is used, the resulting bootstrap data are I(1) and satisfy the null co-integration rank, regardless of the true rank. This ensures that the bootstrap LR test is asymptotically correctly sized and that the probability that the bootstrap sequential procedure selects a rank smaller than the true rank converges to zero. Monte Carlo evidence suggests that our bootstrap procedures work very well in practice.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +39 0 51 209.82.01
Fax: +39 0 51 23.21.53
Web page: http://www.stat.unibo.itEmail:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:bot:quadip:113. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Enrica Zani)
If references are entirely missing, you can add them using this form.