Testing for cointegration in I(1) state space systems via a finite order approximation

Massimo Franchi

Economics Letters, 2018, vol. 165, issue C, 73-76

Abstract: The present paper employs the infinite order error correction representation of the observables of a I(1) state space system and analyzes by simulation the small sample behaviour of the test on rank and on the cointegrating vectors calculated via a finite order cointegrated vector autoregressive approximation. The rank test performs very well in systems with a small number of states and stochastic trends (≤4) and a medium number of observables (≤35) already for a sample of size T=300 and it is still reliable with a large number of observables (≤140) when T=600. The behaviour of the test on the cointegrating vectors is more problematic.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:165:y:2018:i:c:p:73-76

DOI: 10.1016/j.econlet.2018.02.012

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