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Testing the CVAR in the fractional CVAR model

Author

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  • Soeren Johansen

    (Department of Economics, University of Copenhagen and CREATES)

  • Morten Oeregaard Nielsen

    (Department of Economics, University of Copenhagen Queen?s University and CREATES)

Abstract

We consider the fractional cointegrated vector autoregressive (CVAR) model of Johansen and Nielsen (2012a) and show that the test statistic for the ususal CVAR model is asymptotically chi-squared distributed. Because the usual CVAR model lies on the boundary of the parameter space for the fractional CVAR in Johansen and Nielsen (2012a), the analysis requires the study of the fractional CVAR model on a slightly larger parameter space so that the CVAR model lies in the interior. This in turn implies some further analysis of the asymptotic properties of the fractional CVAR model.

Suggested Citation

  • Soeren Johansen & Morten Oeregaard Nielsen, 2017. "Testing the CVAR in the fractional CVAR model," Discussion Papers 17-23, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:1723
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    References listed on IDEAS

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    1. Søren Johansen & Morten Ørregaard Nielsen, 2012. "Likelihood Inference for a Fractionally Cointegrated Vector Autoregressive Model," Econometrica, Econometric Society, vol. 80(6), pages 2667-2732, November.
    2. Johansen, Søren & Nielsen, Morten Ørregaard, 2010. "Likelihood inference for a nonstationary fractional autoregressive model," Journal of Econometrics, Elsevier, vol. 158(1), pages 51-66, September.
    3. Chen, Cathy Yi-Hsuan & Chiang, Thomas C. & Härdle, Wolfgang Karl, 2016. "Downside risk and stock returns: An empirical analysis of the long-run and short-run dynamics from the G-7 Countries," SFB 649 Discussion Papers 2016-001, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
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    5. Federico Carlini & Paolo Santucci de Magistris, 2019. "On the Identification of Fractionally Cointegrated VAR Models With the Condition," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 37(1), pages 134-146, January.
    6. Andreas Noack Jensen & Morten Ørregaard Nielsen, 2014. "A Fast Fractional Difference Algorithm," Journal of Time Series Analysis, Wiley Blackwell, vol. 35(5), pages 428-436, August.
    7. Johansen, Søren & Ørregaard Nielsen, Morten, 2012. "A Necessary Moment Condition For The Fractional Functional Central Limit Theorem," Econometric Theory, Cambridge University Press, vol. 28(3), pages 671-679, June.
    8. Juan J. Dolado & Jesus Gonzalo & Laura Mayoral, 2002. "A Fractional Dickey-Fuller Test for Unit Roots," Econometrica, Econometric Society, vol. 70(5), pages 1963-2006, September.
    9. Dolatabadi, Sepideh & Nielsen, Morten Ørregaard & Xu, Ke, 2016. "A fractionally cointegrated VAR model with deterministic trends and application to commodity futures markets," Journal of Empirical Finance, Elsevier, vol. 38(PB), pages 623-639.
    10. Tanaka, Katsuto, 1999. "The Nonstationary Fractional Unit Root," Econometric Theory, Cambridge University Press, vol. 15(4), pages 549-582, August.
    11. Morten Ø. Nielsen & Michal Ksawery Popiel, 2018. "A Matlab Program And User's Guide For The Fractionally Cointegrated Var Model," Working Paper 1330, Economics Department, Queen's University.
    12. Johansen, Søren & Nielsen, Morten Ørregaard, 2016. "The Role Of Initial Values In Conditional Sum-Of-Squares Estimation Of Nonstationary Fractional Time Series Models," Econometric Theory, Cambridge University Press, vol. 32(5), pages 1095-1139, October.
    13. Morten Ørregaard Nielsen & Michał Ksawery Popiel, 2018. "A Matlab program and user's guide for the fractionally cointegrated VAR model," Working Papers 1330, Queen's University, Department of Economics.
    14. Christos Agiakloglou & Paul Newbold, 1994. "Lagrange Multiplier Tests For Fractional Difference," Journal of Time Series Analysis, Wiley Blackwell, vol. 15(3), pages 253-262, May.
    15. Bollerslev, Tim & Osterrieder, Daniela & Sizova, Natalia & Tauchen, George, 2013. "Risk and return: Long-run relations, fractional cointegration, and return predictability," Journal of Financial Economics, Elsevier, vol. 108(2), pages 409-424.
    16. Johansen, SØren, 2008. "A Representation Theory For A Class Of Vector Autoregressive Models For Fractional Processes," Econometric Theory, Cambridge University Press, vol. 24(3), pages 651-676, June.
    17. Andrews, Donald W K, 2001. "Testing When a Parameter Is on the Boundary of the Maintained Hypothesis," Econometrica, Econometric Society, vol. 69(3), pages 683-734, May.
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    Cited by:

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    4. Pérez-Rodríguez, Jorge V. & Andrada-Félix, Julián & Rachinger, Heiko, 2021. "Testing the forward volatility unbiasedness hypothesis in exchange rates under long-range dependence," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    5. Abbritti, Mirko & Carcel, Hector & Gil-Alana, Luis & Moreno, Antonio, 2023. "Term premium in a fractionally cointegrated yield curve," Journal of Banking & Finance, Elsevier, vol. 149(C).
    6. Søren Johansen & Morten Ørregaard Nielsen, 2019. "Nonstationary Cointegration in the Fractionally Cointegrated VAR Model," Journal of Time Series Analysis, Wiley Blackwell, vol. 40(4), pages 519-543, July.
    7. Javier Hualde & Morten {O}rregaard Nielsen, 2022. "Fractional integration and cointegration," Papers 2211.10235, arXiv.org.
    8. Yan, Meng & Chen, Jian & Song, Victor & Xu, Ke, 2022. "Trade friction and price discovery in the USD–CAD spot and forward markets," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    9. Carlos D. Ramirez, 2024. "The effect of economic policy uncertainty under fractional integration," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 89-110, January.
    10. Nikolaos Stoupos & Apostolos Kiohos, 2022. "Euro Area: Towards a European Common Bond? – Empirical Evidence from the Sovereign Debt Markets," Journal of Common Market Studies, Wiley Blackwell, vol. 60(4), pages 1019-1046, July.
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    More about this item

    Keywords

    Cointegration; fractional integration; likelihood inference; vector autoregressive model.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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