Bootstrapping the Error Correction Model Cointegration Test

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Use this URL to link or cite this item: http://hdl.handle.net/10227/133
Title: Bootstrapping the Error Correction Model Cointegration Test
Author: Ahlgren, Niklas
Contributor: Hanken School of Economics, Department of Finance and Statistics, Statistics
Belongs to series: Working Papers - 428
ISSN: 0357-4598
ISBN: 951-555-647-3
Abstract: This paper is concerned with using the bootstrap to obtain improved critical values for the error correction model (ECM) cointegration test in dynamic models. In the paper we investigate the effects of dynamic specification on the size and power of the ECM cointegration test with bootstrap critical values. The results from a Monte Carlo study show that the size of the bootstrap ECM cointegration test is close to the nominal significance level. We find that overspecification of the lag length results in a loss of power. Underspecification of the lag length results in size distortion. The performance of the bootstrap ECM cointegration test deteriorates if the correct lag length is not used in the ECM. The bootstrap ECM cointegration test is therefore not robust to model misspecification.
URI: http://hdl.handle.net/10227/133
URN:ISBN:951-555-647-3
Date: 2000
Copyright information: This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.
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