On the Use of Canonical Correlation Analysis in Testing Common Trends

N. H. Chan and Ruey S. Tsay
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N. H. Chan: Carnegie Mellon University, Department of Statistics
Ruey S. Tsay: University of Chicago, Graduate School of Business

A chapter in Modelling and Prediction Honoring Seymour Geisser, 1996, pp 364-377 from Springer

Abstract: Abstract Motivated by the asymptotic uncorrelatedness between the stationary and nonstationary components of a vector time series, a statistic is constructed from the canonical correlations of these components to test for the number of common trends and, hence, the presence of co-integration. For univariate series, such a test statistic possesses direct relationships with the classical Dickey-Fuller test. An iterative testing procedure is then proposed which can handle unit roots of higher multiplicities as well as seasonal co-integrations. In applications, both bootstrap and simulation are used to obtain the empirical critical values of the test statistic. The proposed procedure is illustrated by two real examples.

Keywords: Unit Root; Canonical Correlation; Canonical Correlation Analysis; Nuisance Parameter; Common Trend (search for similar items in EconPapers)
Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4612-2414-3_23

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DOI: 10.1007/978-1-4612-2414-3_23

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