Tests for Cointegration Rank and the Initial Condition

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dc.contributor Hanken School of Economics, Department of Finance and Statistics, Statistics en
dc.contributor Svenska handelshögskolan, institutionen för finansiell ekonomi och ekonomisk statistik, statistik sv
dc.contributor.author Ahlgren, Niklas
dc.contributor.author Juselius, Mikael
dc.date.accessioned 2009-05-13T08:13:17Z
dc.date.available 2009-05-13T08:13:17Z
dc.date.issued 2009-05-13
dc.identifier.isbn 978-952-232-031-5 fi
dc.identifier.issn 0357-4598 fi
dc.identifier.uri http://hdl.handle.net/10227/347 fi
dc.identifier.uri URN:ISBN:978-952-232-031-5 fi
dc.description.abstract Many economic events involve initial observations that substantially deviate from long-run steady state. Initial conditions of this type have been found to impact diversely on the power of univariate unit root tests, whereas the impact on multivariate tests is largely unknown. This paper investigates the impact of the initial condition on tests for cointegration rank. We compare the local power of the widely used likelihood ratio (LR) test with the local power of a test based on the eigenvalues of the companion matrix. We find that the power of the LR test is increasing in the magnitude of the initial condition, whereas the power of the other test is decreasing. The behaviour of the tests is investigated in an application to price convergence. fi
dc.description.abstract Many economic events involve initial observations that substantially deviate from long-run steady state. Initial conditions of this type have been found to impact diversely on the power of univariate unit root tests, whereas the impact on multivariate tests is largely unknown. This paper investigates the impact of the initial condition on tests for cointegration rank. We compare the local power of the widely used likelihood ratio (LR) test with the local power of a test based on the eigenvalues of the companion matrix. We find that the power of the LR test is increasing in the magnitude of the initial condition, whereas the power of the other test is decreasing. The behaviour of the tests is investigated in an application to price convergence. en
dc.language.iso en fi
dc.publisher Hanken School of Economics en
dc.publisher Svenska handelshögskolan sv
dc.relation.ispartofseries Working Papers fi
dc.relation.ispartofseries 539 fi
dc.rights Publikationen är skyddad av upphovsrätten. Den får läsas och skrivas ut för personligt bruk. Användning i kommersiellt syfte är förbjuden. sv
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dc.rights This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited. en
dc.subject asymptotic local power fi
dc.subject cointergration fi
dc.subject companion matrix fi
dc.subject convergence fi
dc.subject initial condition fi
dc.subject likelihood ratio test fi
dc.subject unit root fi
dc.subject.other Statistics fi
dc.title Tests for Cointegration Rank and the Initial Condition fi

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