Determining the number of cointegrating relations under rank constraints

Giuseppe Cavaliere, Luca Fanelli () and Paolo Paruolo

Economics and Quantitative Methods from Department of Economics, University of Insubria

Abstract: This paper proposes likelihood-based procedures for determining the number of cointegrating vectors in the presence of constraints on the cointegration rank. The tests can be applied when a priori information suggests a lower bound on the number of common stochastic trends in the system. The likelihood ratio trace and and lambda max tests are obtained as special cases of the present setup. The tests are easy to implement and have comparable asymptotic power with respect to the trace test; it is also shown that the constrained tests are more powerful for some local alternatives.

Keywords: Cointegration rank; Likelihood ratio; Trace test; Asymptotic power (search for similar items in EconPapers)
JEL-codes: C30 C32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2001-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ins:quaeco:qf0109

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