The Cointegrated Vector Autoregressive Model With General Deterministic Terms

Morten Nielsen and Soren Johansen

No 1363, Working Paper from Economics Department, Queen's University

Abstract: In the cointegrated vector autoregression (CVAR) literature, deterministic terms have until now been analyzed on a case-by-case, or as-needed basis. We give a comprehensive unified treatment of deterministic terms in the additive model X_t = gamma Z_t + Y_t, where Z_t belongs to a large class of deterministic regressors and Y_t is a zero-mean CVAR. We suggest an extended model that can be estimated by reduced rank regression, and give a condition for when the additive and extended models are asymptotically equivalent, as well as an algorithm for deriving the additive model parameters from the extended model parameters. We derive asymptotic properties of the maximum likelihood estimators and discuss tests for rank and tests on the deterministic terms. In particular, we give conditions under which the estimators are asymptotically (mixed) Gaussian, such that associated tests are chi^2-distributed.

Keywords: VAR model; Additive formulation; cointegration; deterministic terms; extended model; likelihood inference (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2016-07
New Economics Papers: this item is included in nep-ets
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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1363.pdf First version 2016 (application/pdf)

Related works:
Journal Article: The cointegrated vector autoregressive model with general deterministic terms (2018)
Working Paper: The cointegrated vector autoregressive model with general deterministic terms (2016)
Working Paper: The cointegrated vector autoregressive model with general deterministic terms (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1363

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