A Monte Carlo Study on the Pitfalls in Determining Deterministic Components in Cointegrating Models

Göran Hjelm () and Martin W Johansson ()
Additional contact information
Göran Hjelm: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Martin W Johansson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

No 2002:3, Working Papers from Lund University, Department of Economics

Abstract: In this paper we examine, by means of Monte Carlo simulation, the properties of the so called 'Pantula principle' for the simultaneous determination of rank and deterministic components in a vector error correction model. Examining the five models contained within the Johansen methodology, we find that the 'Pantula principle' is heavily biased towards choosing model 3 (unrestriced constant) when model 4 (restricted trend) is the true one. We suggest a modification that reduces this bias to an important extent

Keywords: Cointegration; Deterministic components; Monte Carlo simulation (search for similar items in EconPapers)
JEL-codes: C15 C32 C52 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2002-02-05
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Macroeconomics, 2005, pages 691-703.

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2002_003

Access Statistics for this paper

More papers in Working Papers from Lund University, Department of Economics School of Economics and Management, Box 7080, S-22007 Lund, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Iker Arregui Alegria ().