Comovements in Large Systems
In this paper we study various methods for detecting the co integrating rank as the number of variables gets large. We show that the use of standard tools will always lead to misleading inferences in such settings due to excessive size distortions. Particularly the LR test tends to produce too much cointegration. We introduce a new test statistic that displays excellent size properties in both small and large systems. In addition we propose a model selection procedure for selecting the cointegrating rank. A new criterion outperforms the standard information-theoretic criteria (AIC, BIC).
|Date of creation:||01 Nov 1994|
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"Estimating Long-Run Relationships From Dynamic Heterogeneous Panels,"
Cambridge Working Papers in Economics
9215, Faculty of Economics, University of Cambridge.
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