Comovements in Large Systems

Jesus Gonzalo and Jean-Yves Pitarakis

No 1994065, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper we study various methods for detecting the co integrating rank as the number of variables gets large. We show that the use of standard tools will always lead to misleading inferences in such settings due to excessive size distortions. Particularly the LR test tends to produce too much cointegration. We introduce a new test statistic that displays excellent size properties in both small and large systems. In addition we propose a model selection procedure for selecting the cointegrating rank. A new criterion outperforms the standard information-theoretic criteria (AIC, BIC).

Keywords: cointegration; information criteria; large systems; likelihood ratio tests (search for similar items in EconPapers)
JEL-codes: C32 C52 (search for similar items in EconPapers)
Date: 1994-11-01
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Citations: View citations in EconPapers (8)

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Working Paper: Comovements in large systems (1995)
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