Improved likelihood ratio tests for cointegration rank in the VAR model

Arbeitspapier

We suggest improved tests for cointegration rank in the vector au- toregressive (VAR) model and develop asymptotic distribution theory and local power results. The tests are (quasi-)likelihood ratio tests based on a Gaussian likelihood, but of course the asymptotic results apply more generally. The power gains relative to existing tests are due to two factors. First, instead of basing our tests on the conditional (with respect to the initial observations) likelihood, we follow the recent unit root literature and base our tests on the full likelihood as in, e.g., Elliott, Rothenberg, and Stock (1996). Secondly, our tests incorporate a signrestriction which generalizes the one-sided unit root test. We show that the asymptotic local power of the proposed tests dominates that of existing cointegration rank tests.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen's Economics Department Working Paper ; No. 1297

Classification and Topics

• Classification: Wirtschaft ; Hypothesis Testing: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
• Subject: cointegration rank ; efficiency ; likelihood ratio test ; vector autoregression

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Boswijk, H. Peter ; Jansson, Michael ; Ørregaard Nielsen, Morten
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/67876
• Last update: 10.03.2025, 11:44 AM CET