Bayesian Cointegration Analysis

K. Sugita

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper proposes Bayesian estimation of cointegrated VAR systems and a simple method of estimating the cointegration rank using the Bayes factors for the adjustment term. Monte Carlo experiments show that the method proposed is more powerful in selecting the rank, especially with a small sample size, than Johansen's LR test. This is due to the fact that Bayesian analysis uses the exact distributions instead of relying on asymptotic distribution theory. The method proposed here is relatively easy to implement. Over-identifying restrictions on the cointegrating vectors are also considered.

Keywords: COINTEGRATION; DISTRIBUTIONS; BAYES FACTORS (search for similar items in EconPapers)
JEL-codes: C11 C12 C32 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2001
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:591

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