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How the Removal of Deposit Rate Ceilings Has Changed Monetary Transmission in the US: Theory and Evidence

  • Karel Mertens

A test for the cointegrating rank of a vector autoregressive (VAR) process with a possible shift and broken linear trend is proposed. The break point is assumed to be known. The setup is a VAR process for cointegrated variables. The tests are not likelihood ratio tests but the deterministic terms including the broken trends are removed first by a GLS procedure and a likelihood ratio type test is applied to the adjusted series. The asymptotic null distribution of the test is derived and it is shown by a Monte Carlo experiment that the test has better small sample properties in many cases than a corresponding Gaussian likelihood ratio test for the cointegrating rank.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2006/34.

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Date of creation: 2006
Date of revision:
Handle: RePEc:eui:euiwps:eco2006/34
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  1. Attfield, Clifford & Temple, Jonathan, 2004. "Measuring Trend Output: How Useful Are the Great Ratios?," CEPR Discussion Papers 4796, C.E.P.R. Discussion Papers.
  2. Carsten Trenkler, 2008. "Determining p-values for systems cointegration tests with a prior adjustment for deterministic terms," Computational Statistics, Springer, vol. 23(1), pages 19-39, January.
  3. Søren Johansen & Rocco Mosconi & Bent Nielsen, 2000. "Cointegration analysis in the presence of structural breaks in the deterministic trend," Econometrics Journal, Royal Economic Society, vol. 3(2), pages 216-249.
  4. Saikkonen, Pentti & L tkepohl, Helmut, 1999. "Local Power Of Likelihood Ratio Tests For The Cointegrating Rank Of A Var Process," Econometric Theory, Cambridge University Press, vol. 15(01), pages 50-78, February.
  5. Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1991. "Stochastic trends and economic fluctuations," Working Paper Series, Macroeconomic Issues 91-4, Federal Reserve Bank of Chicago.
  6. Saikkonen, Pentti & L tkepohl, Helmut & Trenkler, Carsten, 2006. "Break Date Estimation For Var Processes With Level Shift With An Application To Cointegration Testing," Econometric Theory, Cambridge University Press, vol. 22(01), pages 15-68, February.
  7. Jurgen A. Doornik, 1998. "Approximations To The Asymptotic Distributions Of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-593, December.
  8. A. Scorcu, 2002. "On the Time Stability of the Output-Capital Ratio," Working Papers 434, Dipartimento Scienze Economiche, Universita' di Bologna.
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