Economics at your fingertips  

Can you do the wrong thing and still be right? Hypothesis testing in I(2) and near-I(2) cointegrated VARs

Francesca Di Iorio, Stefano Fachin () and Riccardo (Jack) Lucchetti ()

Applied Economics, 2016, vol. 48, issue 38, 3665-3678

Abstract: In this paper, we investigate the small-sample performance of LR tests on long-run coefficients in the I (2) model; we focus on a comparison between I (2) and near- I (2) data, i.e. I (1) data with a second root very close to unity, and report the results of some Monte Carlo experiments. With near- I (2) data, the finite-sample properties of the tests are (i) similar to those found with genuine I (2) data, (ii) systematically superior to those of the analogous tests constructed in the I (1) model, even if the latter is, in principle, correctly specified and the former is not. Therefore, there seems to be strong support to the idea that, in practice, modelling near- I (2) data using the I (2) model may be a good idea, despite the inherent misspecification.

Date: 2016
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link) (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Can you do the wrong thing and still be right? Hypothesis Testing in I(2) and near-I(2) cointegrated VARs (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

Page updated 2019-07-21
Handle: RePEc:taf:applec:v:48:y:2016:i:38:p:3665-3678