Testing Cointegration Rank in Large Systems
In this paper we investigate the possibility of the application of subsampling procedure for testing cointegration relations in large multivariate systems. The subsampling technique is applied to overcome the difficulty of nonstandard distribution and nuisance parameters in testing for cointegration rank without an explicitly formulated structural model. The contribution in this paper is twofold: theoretically this paper shows that the subsampling testing procedure is consistent and asymptotically most powerful; practically this paper demonstrates that the subsampling procedure can be applied to determine the cointegration rank in large scale models, where the standard procedures hits already its limit. Especially for the cases of few stochastic trends in a system, the subsampling procedure shows robust and reliable results.
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- Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992.
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