A Test of Cointegration Rank Based on Principal Component Analysis (revised, January 2006)
This paper considers a test of the rank of cointegration. The test is based on the fact that in an m-variate system the m-r th principal component is I (1) under the null of r cointegration rank but I (0) under the alternative of r+1 cointegration rank. Exploiting this fact, we construct a cointegration rank test that is less restrictive than Johansen's tests, easy to calculate, and independent of the dimension of the process. Monte Carlo simulations indicate that the proposed test outperforms Johansen's tests, even in the case of a model that satisfies the assumptions required for Johansen's tests and when the sample size is small.
|Date of creation:||Nov 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.ier.hit-u.ac.jp/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hst:hstdps:d05-126. 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: (Tatsuji Makino)
If references are entirely missing, you can add them using this form.