Likelihood inference for a fractionally cointegrated vector autoregressive model

Soren Johansen and Morten Nielsen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We consider model based inference in a fractionally cointegrated (or cofractional) vector autoregressive model based on the conditional Gaussian likelihood. The model allows the process X_{t} to be fractional of order d and cofractional of order d-b; that is, there exist vectors ß for which ß'X_{t} is fractional of order d-b. The parameters d and b satisfy either d=b=1/2, d=b=1/2, or d=d_{0}=b=1/2. Our main technical contribution is the proof of consistency of the maximum likelihood estimators on the set 1/2=b=d=d_{1} for any d_{1}=d_{0}. To this end, we consider the conditional likelihood as a stochastic process in the parameters, and prove that it converges in distribution when errors are i.i.d. with suitable moment conditions and initial values are bounded. We then prove that the estimator of ß is asymptotically mixed Gaussian and estimators of the remaining parameters are asymptotically Gaussian. We also find the asymptotic distribution of the likelihood ratio test for cointegration rank, which is a functional of fractional Brownian motion of type II.

Keywords: Cofractional processes; cointegration rank; fractional cointegration; likelihood inference; vector autoregressive model (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Pages: 44
Date: 2010-05-18
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Likelihood Inference for a Fractionally Cointegrated Vector Autoregressive Model (2012)
Working Paper: Likelihood Inference for a Fractionally Cointegrated Vector Autoregressive Model (2010)
Working Paper: Likelihood Inference For A Fractionally Cointegrated Vector Autoregressive Model (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2010-24

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