Testing for the Cointegrating Rank of a VAR Process with Level Shift and Trend Break

Carsten Trenkler, Pentti Saikkonen and Helmut Lütkepohl

Journal of Time Series Analysis, 2008, vol. 29, issue 2, 331-358

Abstract: Abstract. A test for the cointegrating rank of a vector autoregressive (VAR) process with a possible shift and broken linear trend is proposed. The break point is assumed to be known. Our test is not a likelihood ratio test but the deterministic terms including the broken trends are removed first by a generalized least squares procedure. Then, a likelihood ratio‐type test is applied to the adjusted series. The asymptotic null distribution of the test is derived and it is shown by a Monte Carlo experiment that the test has better small‐sample properties in many cases than a corresponding Gaussian likelihood ratio test for the cointegrating rank. Moreover, response surface techniques can be used to easily obtain p‐values of the test for any possible break date.

Date: 2008
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Citations: View citations in EconPapers (22)

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https://doi.org/10.1111/j.1467-9892.2007.00558.x

Related works:
Working Paper: Testing for the Cointegrating Rank of a VAR Process with Level Shift and Trend Break (2006)
Working Paper: Testing for the cointegrating rank of a VAR process with level shift and trend break (2006)
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