A Test of Cointegration Rank Based on Principal Component Analysis (revised, January 2006)

Hiroaki Chigira

Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper considers a test of the rank of cointegration. The test is based on the fact that in an m-variate system the m-r th principal component is I (1) under the null of r cointegration rank but I (0) under the alternative of r+1 cointegration rank. Exploiting this fact, we construct a cointegration rank test that is less restrictive than Johansen's tests, easy to calculate, and independent of the dimension of the process. Monte Carlo simulations indicate that the proposed test outperforms Johansen's tests, even in the case of a model that satisfies the assumptions required for Johansen's tests and when the sample size is small.

Keywords: Cointegratin test; Unit roots (search for similar items in EconPapers)
JEL-codes: C12 C22 C32 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-ets
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hi-stat.ier.hit-u.ac.jp/research/discussion/2005/pdf/D05-126.pdf (application/pdf)

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:hst:hstdps:d05-126

Access Statistics for this paper

More papers in Hi-Stat Discussion Paper Series from Institute of Economic Research, Hitotsubashi University Contact information at EDIRC.
Bibliographic data for series maintained by Tatsuji Makino ().