Testing for the Cointegrating Rank of a VAR Process with a Time Trend (1997)
| Venue: | DISCUSSION PAPER 51, SFB 373, HUMBOLDT-UNIVERSITAT ZU |
| Citations: | 22 - 3 self |
BibTeX
@INPROCEEDINGS{Lütkepohl97testingfor,
author = {Helmut Lütkepohl and Pentti Saikkonen},
title = {Testing for the Cointegrating Rank of a VAR Process with a Time Trend},
booktitle = {DISCUSSION PAPER 51, SFB 373, HUMBOLDT-UNIVERSITAT ZU},
year = {1997},
pages = {16--373},
publisher = {}
}
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Abstract
Standard tests for the cointegrating rank of a vector autoregressive (VAR) process have nonstandard limiting distributions which depend on the characteristics of intercept terms and time trends in the system. In practice these characteristics are often unknown. Therefore modified tests are proposed with limiting distributions which do not depend on the characteristics of deterministic terms under the null hypothesis. One type of tests makes use of lag augmentation, that is, a VAR process of order p + 1 is fitted when the true order is p while the tests are based on the coefficient matrices of the first p lags only. It is shown that Ø 2 limiting distributions are obtained in this way. The price for this simplicity will be reduced power, however. Therefore, we also consider LM (Lagrange multiplier) type tests. These tests are shown to have nonstandard limiting distributions which do not depend on deterministic terms and have better local power than competing LR (likelihood ratio) test...
