Bayesian Testing in Cointegration Models using the Jeffreys' Prior
We develop a Bayesian cointegration test statistic that can be used under a Jeffreys' prior. The test statistic is equal to the posterior expectation of the classical score statistic. Under the assumption of a full rank value of the long run multiplier the test statistic is a random variable with a chi-squared distribution. We evaluate whether the value of the test statistic under the restriction of cointegration is a plausible realization from its distribution under the encompassing, full rank model. We provide the posterior simulator that is needed to compute the test statistic. The simulator utilizes the invariance properties of the Jeffreys' prior such that the parameter drawings from a suitably rescaled model can be used. The test statistic can straightforwardly be extended to a more general model setting. For example, we show that structural breaks in the constant or trend and general mixtures of normal disturbances can be modelled, because conditional on some latent parameters all derivations still hold. We apply the Bayesian cointegration statistic to the Danish dataset of Johansen and Juselius (1990) and to four artificial examples to illustrate the use of the statistic as a diagnostic tool.
|Date of creation:||01 Aug 2000|
|Date of revision:|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kleibergen, F.R. & Paap, R., 1998.
"Priors, posteriors and Bayes factors for a Bayesian analysis of cointegration,"
Econometric Institute Research Papers
EI 9821, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Kleibergen, Frank & Paap, Richard, 2002. "Priors, posteriors and bayes factors for a Bayesian analysis of cointegration," Journal of Econometrics, Elsevier, vol. 111(2), pages 223-249, December.
- Geweke, J, 1993. "Bayesian Treatment of the Independent Student- t Linear Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S19-40, Suppl. De.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
- Kleibergen, Frank & van Dijk, Herman K., 1994. "On the Shape of the Likelihood/Posterior in Cointegration Models," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 514-551, August.
When requesting a correction, please mention this item's handle: RePEc:ecm:wc2000:1445. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.