Testing for common trends in conditional I(2) VAR models

Paolo Paruolo

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

Abstract: This paper presents cointegration tests in the integration indices (II) in cointegrated (CI) vector autoregressive processes (VAR). The statistical analysis is performed under the assumption that some variables are weakly exogenous with respect to the (multi-)cointegration parameters, a condition that corresponds to no integral and proportional feedback in the marginal system (NF). The specification of the deterministic components is chosen so as to allow for a linear trend in all possible directions.The asymptotic distribution is derived both under correct specification of the weak exogeneity assumptions and under mis-specification. Tables of limit distributions are obtained by simulation. It is found that some types of mis-specification modify the asymptotic distributions of the tests considerably. However, the asymptotics are unaffected by misspecification provided the adjustment coefficients in the conditional system are of full rank.

Keywords: cointegration rank test; common trends; VAR; I(2); 2SI2; conditional systems (search for similar items in EconPapers)
Pages: 40 pages
Date: 2002-12
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ins:quaeco:qf0216

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