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 ()
No 395, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali
We review the I(2) model in the perspective of its application to near-I(2) data, and report the results of some Monte Carlo simulations on the small sample performance of asymptotic tests on the long-run coefficients in both I(2) and near-I(2) systems. Our findings suggest that these tests suffer from some finite-sample issues, such as size bias. However, the behaviour of these statistics is not markedly different in the I(2) and near-I(2) case at ordinary sample sizes, so the usage of the I(2) model with near-I(2) data is perfectly defensible in finite samples.
Keywords: Cointegration; Hypothesis testing; I(2); near-I(2) (search for similar items in EconPapers)
JEL-codes: C12 C32 C52 (search for similar items in EconPapers)
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Journal Article: Can you do the wrong thing and still be right? Hypothesis testing in I(2) and near-I(2) cointegrated VARs (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:395
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