Abstract
In this paper a nonparametric variance ratio testing approach is proposed for determining
the number of cointegrating relations in fractionally integrated systems. The test statistic is
easily calculated without prior knowledge of the integration order of the data, the strength of
the cointegrating relations, or the cointegration vector(s). The latter property makes it easier to
implement than regression-based approaches, especially when examining relationships between
several variables with possibly multiple cointegrating vectors. Since the test is nonparametric, it
does not require the specification of a particular model and is invariant to short-run dynamics.
Nor does it require the choice of any smoothing parameters that change the test statistic without
being reflected in the asymptotic distribution. Furthermore, a consistent estimator of the
cointegration space can be obtained from the procedure. The asymptotic distribution theory
for the proposed test is non-standard but easily tabulated. Monte Carlo simulations demonstrate
excellent finite sample properties, even rivaling those of well-specified parametric tests.
The proposed methodology is applied to the term structure of interest rates, where, contrary to
both fractional and integer-based parametric approaches, evidence in favor of the expectations
hypothesis is found using the nonparametric approach.
the number of cointegrating relations in fractionally integrated systems. The test statistic is
easily calculated without prior knowledge of the integration order of the data, the strength of
the cointegrating relations, or the cointegration vector(s). The latter property makes it easier to
implement than regression-based approaches, especially when examining relationships between
several variables with possibly multiple cointegrating vectors. Since the test is nonparametric, it
does not require the specification of a particular model and is invariant to short-run dynamics.
Nor does it require the choice of any smoothing parameters that change the test statistic without
being reflected in the asymptotic distribution. Furthermore, a consistent estimator of the
cointegration space can be obtained from the procedure. The asymptotic distribution theory
for the proposed test is non-standard but easily tabulated. Monte Carlo simulations demonstrate
excellent finite sample properties, even rivaling those of well-specified parametric tests.
The proposed methodology is applied to the term structure of interest rates, where, contrary to
both fractional and integer-based parametric approaches, evidence in favor of the expectations
hypothesis is found using the nonparametric approach.
| Originalsprog | Engelsk |
|---|---|
| Udgivelsessted | Aarhus |
| Antal sider | 37 |
| Status | Udgivet - 2009 |