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On the Distribution of Likelihood Ratio Test Statistics for Cointegration Rank 

Author: Bent Nielsen ab
Affiliations:   a Department of Economics, University of Oxford, Oxford, UK
b Nuffield College, Oxford, UK
DOI: 10.1081/ETC-120028834
Publication Frequency: 6 issues per year
Published in: journal Econometric Reviews, Volume 23, Issue 1 December 2004 , pages 1 - 23
Formats available: HTML (English) : PDF (English)
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Abstract

This paper analyses the likelihood ratio test for the hypothesis of reduced cointegration rank in a Gaussian vector autoregressive model. The usual asymptotic distribution typically gives rather large size distortions. This is explained by the fact that the asymptotic distribution of the likelihood ratio test statistic varies across the parameter space. A much improved distribution approximation can be obtained using local asymptotic theory. The idea is discussed for some low dimensional examples.
Keywords: Bartlett corrections; Cointegration; Finite sample results; Lack of similarity; Local asymptotics
JEL Classification: C12; C22; C32
view references (38) : view citations
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