Design of vector autoregressive processes for invariant statistics

Paolo Paruolo

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

Abstract: This paper discusses the Monte Carlo (MC) design of Gaussian Vector Au- toregressive processes (VAR) for the evalutation of invariant statistics. We focus on the case of cointegrated (CI) I(1) processes, linear and invertible trans- formations and CI rank likelihood ratio (LR) tests. It is found that all VAR of order 1 can be reduced to a system of independent or recursive subsystems, of computational dimension at most equal to 2. The results are applied to the indexing of the distribution of LR test statistics for CI rank under local alternatives. They are also extended to the case of VAR processes of higher order.

Keywords: Invariance; Vector autoregressive process; Monte Carlo; Likeli-hood ratio test; Cointegration. (search for similar items in EconPapers)
Pages: 31 pages
Date: 2005-09
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ins:quaeco:qf0504

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