A Monte Carlo Study on the Pitfalls in Determining Deterministic Components in Cointegrating Models
In this paper we examine, by means of Monte Carlo simulation, the properties of the so called 'Pantula principle' for the simultaneous determination of rank and deterministic components in a vector error correction model. Examining the five models contained within the Johansen methodology, we find that the 'Pantula principle' is heavily biased towards choosing model 3 (unrestriced constant) when model 4 (restricted trend) is the true one. We suggest a modification that reduces this bias to an important extent
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|Date of creation:||05 Feb 2002|
|Date of revision:|
|Publication status:||Published in Journal of Macroeconomics, 2005, pages 691-703.|
|Contact details of provider:|| Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden|
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