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Analysis of panel vector error correction models using maximum likelihood, the bootstrap, and canonical-correlation estimators

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  • Richard G. Anderson
  • Hailong Qian
  • Robert H. Rasche

Abstract

In this paper, we examine the use of Box-Tiao*s (1977) canonical correlation method as an alternative to likelihood-based inferences for vector error-correction models. It is now well-known that testing of cointegration ranks based on Johansen*s (1995) ML-based method suffers from severe small sample size distortions. Furthermore, the distributions of empirical economic and financial time series tend to display fat tails, heteroskedasticity and skewness that are inconsistent with the usual distributional assumptions of likelihood-based approach. The testing statistic based on Box-Tiao*s canonical correlations shows promise as an alternative to Johansen*s ML-based approach for testing of cointegration rank in VECM models.

Suggested Citation

  • Richard G. Anderson & Hailong Qian & Robert H. Rasche, 2006. "Analysis of panel vector error correction models using maximum likelihood, the bootstrap, and canonical-correlation estimators," Working Papers 2006-050, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2006-050
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    3. Urgaia, Worku R., 2018. "The Role of Human Capital Resources in East African Economies," GLO Discussion Paper Series 218, Global Labor Organization (GLO).
    4. Ogunlesi, Ayodeji, 2018. "Agricultural Productivity, Fiscal and Trade Policies Nexus in Sub-Saharan Africa: A Panel Structural Vector Error Correction Model Analysis," MPRA Paper 90202, University Library of Munich, Germany.
    5. Droge, Bernd & Örsal, Deniz Dilan Karaman, 2009. "Panel cointegration testing in the presence of a time trend," SFB 649 Discussion Papers 2009-005, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    6. Hasanov, Fakhri & Bulut, Cihan & Suleymanov, Elchin, 2017. "Review of energy-growth nexus: A panel analysis for ten Eurasian oil exporting countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 73(C), pages 369-386.
    7. Hail Park & Yongcheol Shin, 2014. "Mapping Korea's International Linkages using Generalised Connectedness Measures," Working Papers 2014-16, Economic Research Institute, Bank of Korea.
    8. Piotr Kębłowski, 2016. "Canonical Correlation Analysis in Panel Vector Error Correction Model. Performance Comparison," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 8(4), pages 203-217, December.

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