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A Note on Hypothesis Testing Based on the Fully Modified Vector Autoregression


  • Yamada, H.
  • Toda, H.Y.


This paper investigates the sampling performance of hypothesis tests based on the fully modified vector autoregression (FM-VAR) that has recently been developed by Phillips (1995). The FM-VAR procedure is applicable without any prior knowledge about the number and location of unit roots. We consider Granger causality tests as a typical example to which the FM-VAR approach could usefully be applied. Through Monte Carlo experiments, we examine whether the rejection frequencies of the tests under the null hypothesis are close enough to a desired significance level for sample sizes that are typically available to economists.

Suggested Citation

  • Yamada, H. & Toda, H.Y., 1996. "A Note on Hypothesis Testing Based on the Fully Modified Vector Autoregression," ISER Discussion Paper 0423, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:0423

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    References listed on IDEAS

    1. Itoh, Hideshi, 1992. "Cooperation in Hierarchical Organizations: An Incentive Perspective," Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(2), pages 321-345, April.
    2. Hermalin, Benjamin E & Katz, Michael L, 1991. "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency," Econometrica, Econometric Society, vol. 59(6), pages 1735-1753, November.
    3. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
    4. repec:bla:joares:v:31:y:1993:i:1:p:1-20 is not listed on IDEAS
    5. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    6. Nahum D. Melumad & Dilip Mookherjee, 1989. "Delegation as Commitment: The Case of Income Tax Audits," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 139-163, Summer.
    7. Holmstrom, Bengt & Milgrom, Paul, 1987. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica, Econometric Society, vol. 55(2), pages 303-328, March.
    8. repec:bla:joares:v:25:y:1987:i::p:1-21 is not listed on IDEAS
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    Cited by:

    1. Yamada, Hiroshi & Toda, Hiro Y., 1998. "Inference in possibly integrated vector autoregressive models: some finite sample evidence," Journal of Econometrics, Elsevier, vol. 86(1), pages 55-95, June.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models


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