Improved Likelihood Ratio Tests for Cointegration Rank in the VAR Model

H. Peter Boswijk (), Michael Jansson and Morten ßrregaard Nielsen

No 274617, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We suggest improved tests for cointegration rank in the vector au- toregressive (VAR) model and develop asymptotic distribution theory and local power results. The tests are (quasi-)likelihood ratio tests based on a Gaussian likelihood, but as usual the asymptotic results do not require normally distributed innovations. Our tests differ from existing tests in two respects. First, instead of basing our tests on the conditional (with respect to the initial observations) likelihood, we follow the recent unit root literature and base our tests on the full likelihood as in, e.g., Elliott, Rothenberg, and Stock (1996). Secondly, our tests incorporate a "sign" restriction which generalizes the one-sided unit root test. We show that the asymptotic local power of the proposed tests dominates that of existing cointegration rank tests.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 31
Date: 2012-08
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Related works:
Journal Article: Improved likelihood ratio tests for cointegration rank in the VAR model (2015)
Working Paper: Improved Likelihood Ratio Tests for Cointegration Rank in the VAR Model (2012)
Working Paper: Improved Likelihood Ratio Tests For Cointegration Rank In The Var Model (2012)
Working Paper: Improved Likelihood Ratio Tests for Cointegration Rank in the VAR Model (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274617

DOI: 10.22004/ag.econ.274617

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