Improved likelihood ratio tests for cointegration rank in the VAR model

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We suggest improved tests for cointegration rank in the vector autoregressive (VAR) model and develop asymptotic distribution theory and local power results. The tests are (quasi-)likelihood ratio tests based on a Gaussian likelihood, but as usual the asymptotic results do not require normally distributed innovations. Our tests differ from existing tests in two respects. First, instead of basing our tests on the conditional (with respect to the initial observations) likelihood, we follow the recent unit root literature and base our tests on the full likelihood as in, e.g., Elliott et al. (1996). Second, our tests incorporate a “sign” restriction which generalizes the one-sided unit root test. We show that the asymptotic local power of the proposed tests dominates that of existing cointegration rank tests.
OriginalsprogEngelsk
TidsskriftJournal of Econometrics
Vol/bind184
Nummer1
Sider (fra-til)97-110
Antal sider14
ISSN0304-4076
DOI
StatusUdgivet - 2015

    Forskningsområder

  • Cointegration rank, Efficiency, Likelihood ratio test, Vector autoregression

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