The likelihood ratio test for cointegration ranks in the I(2) model

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The likelihood ratio test for cointegration ranks in the I(2) model. / Nielsen, Heino Bohn; Rahbek, Anders Christian.

I: Econometric Theory, Bind 23, Nr. 4, 2007, s. 615-637.

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt

Harvard

Nielsen, HB & Rahbek, AC 2007, 'The likelihood ratio test for cointegration ranks in the I(2) model', Econometric Theory, bind 23, nr. 4, s. 615-637. https://doi.org/10.1017/S0266466607070272

APA

Nielsen, H. B., & Rahbek, A. C. (2007). The likelihood ratio test for cointegration ranks in the I(2) model. Econometric Theory, 23(4), 615-637. https://doi.org/10.1017/S0266466607070272

Vancouver

Nielsen HB, Rahbek AC. The likelihood ratio test for cointegration ranks in the I(2) model. Econometric Theory. 2007;23(4):615-637. https://doi.org/10.1017/S0266466607070272

Author

Nielsen, Heino Bohn ; Rahbek, Anders Christian. / The likelihood ratio test for cointegration ranks in the I(2) model. I: Econometric Theory. 2007 ; Bind 23, Nr. 4. s. 615-637.

Bibtex

@article{f35e178083c811dcbee902004c4f4f50,
title = "The likelihood ratio test for cointegration ranks in the I(2) model",
abstract = "This paper presents the likelihood ratio (LR) test for the number of cointegrating relations in the I(2) vector autoregressive model. It is shown that the asymptotic distribution of the LR test for the cointegration ranks is identical to the asymptotic distribution of the much applied test statistic based on the two-step estimation procedure in Johansen (1995, Econometric Theory 11, 25-59), Paruolo (1996, Journal of Econometrics 72, 313-356), and Rahbek, Kongsted, and J{\o}rgensen (1999, Journal of Econometrics 90, 265-289). By construction the LR test statistic is smaller than the non-LR test statistic from the two-step procedure, and application of the LR test may change rank selection in empirical work. Based on a study of existing empirical applications and related Monte Carlo simulations we conclude that the LR test has much better size properties when compared to the two-step-based test. Overall, we propose use of the LR test for rank determination in I(2) analysis",
author = "Nielsen, {Heino Bohn} and Rahbek, {Anders Christian}",
note = "JEL Classification: C32",
year = "2007",
doi = "10.1017/S0266466607070272",
language = "English",
volume = "23",
pages = "615--637",
journal = "Econometric Theory",
issn = "0266-4666",
publisher = "Cambridge University Press",
number = "4",

}

RIS

TY - JOUR

T1 - The likelihood ratio test for cointegration ranks in the I(2) model

AU - Nielsen, Heino Bohn

AU - Rahbek, Anders Christian

N1 - JEL Classification: C32

PY - 2007

Y1 - 2007

N2 - This paper presents the likelihood ratio (LR) test for the number of cointegrating relations in the I(2) vector autoregressive model. It is shown that the asymptotic distribution of the LR test for the cointegration ranks is identical to the asymptotic distribution of the much applied test statistic based on the two-step estimation procedure in Johansen (1995, Econometric Theory 11, 25-59), Paruolo (1996, Journal of Econometrics 72, 313-356), and Rahbek, Kongsted, and Jørgensen (1999, Journal of Econometrics 90, 265-289). By construction the LR test statistic is smaller than the non-LR test statistic from the two-step procedure, and application of the LR test may change rank selection in empirical work. Based on a study of existing empirical applications and related Monte Carlo simulations we conclude that the LR test has much better size properties when compared to the two-step-based test. Overall, we propose use of the LR test for rank determination in I(2) analysis

AB - This paper presents the likelihood ratio (LR) test for the number of cointegrating relations in the I(2) vector autoregressive model. It is shown that the asymptotic distribution of the LR test for the cointegration ranks is identical to the asymptotic distribution of the much applied test statistic based on the two-step estimation procedure in Johansen (1995, Econometric Theory 11, 25-59), Paruolo (1996, Journal of Econometrics 72, 313-356), and Rahbek, Kongsted, and Jørgensen (1999, Journal of Econometrics 90, 265-289). By construction the LR test statistic is smaller than the non-LR test statistic from the two-step procedure, and application of the LR test may change rank selection in empirical work. Based on a study of existing empirical applications and related Monte Carlo simulations we conclude that the LR test has much better size properties when compared to the two-step-based test. Overall, we propose use of the LR test for rank determination in I(2) analysis

U2 - 10.1017/S0266466607070272

DO - 10.1017/S0266466607070272

M3 - Journal article

VL - 23

SP - 615

EP - 637

JO - Econometric Theory

JF - Econometric Theory

SN - 0266-4666

IS - 4

ER -

ID: 1385526