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

Abstract: 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)
Pages: 20
Date: 2013-11
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (1)

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http://docs.dises.univpm.it/web/quaderni/pdf/395.pdf First version, 2013 (application/pdf)

Related works:
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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