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Testing forrversusr−1 cointegrating vectors

Authors
Journal
Journal of Econometrics
0304-4076
Publisher
Elsevier
Publication Date
Volume
88
Issue
1
Identifiers
DOI: 10.1016/s0304-4076(98)00029-3
Keywords
  • Cointegration Test
  • Noninvertible Moving Average
  • Unit Roots
  • Arma Estimation
  • Johansen Test

Abstract

Abstract A parametric test for r versus r−1 cointegrating vectors is developed. The test exploits the fact that in a system of n I(1) variates the rth principal component is I(0) under the null but I(1) under the alternative. The statistic is parametric, is constructed using simple regression methods applied to principal components, follows a standard χ 2 distribution and does not require normalisation restrictions on the cointegrating vectors. A Monte Carlo investigation indicates that providing the lag length in the pre-whitening procedure is chosen by means of nested significance tests, the test has good size and power properties in small samples.

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