Maximum likelihood estimation of the multivariate fractional cointegrating model

Johan Lyhagen (johan.lyhagen@statistics.uu.se)

No 233, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: Departures from an economic equilibrium should be mean reverting. The deviations are often assumed to be integrated of order zero but this is too restrictive. It is sufficient that the shocks are integrated of an order less than one, i.e. they may be fractionally integrated. A fractionally cointegrated system is developed. Further, estimation and testing are discussed, analytically and by Monte Carlo simulations. The Monte Carlo simulations shows that it is much more severe to ignore fractional cointegration than incorporating it when it is not present.

Keywords: Fractional integration; Granger representation theorem; Likelihood ratio test; Monte Carlo. (search for similar items in EconPapers)
JEL-codes: C12 C13 C32 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1998-04-22
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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