FINITE‐SAMPLE SIZES OF JOHANSEN's LIKELIHOOD RATIO TESTS FOR COINTEGRATION

Cheung, Yin‐Wong; Lai, Kon S.

doi:10.1111/j.1468-0084.1993.mp55003003.x

Cited by 945 publications

(335 citation statements)

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“…This highlights the fact that the sequential wild bootstrap method for cointegration rank determination is a robust procedure, especially when the sample size is large. Moreover, comparing the results in Tables 4.1-4.3, we note that BIC(k, r) and Q * r,k BIC (p),T 13 These results are in line with the simulation results obtained for standard Johansen's PLR test by Cheung and Lai (1993), Yap and Reinsel (1995), Haug (1996), and Saikkonen and Luukkonen (1997) which show that under-specifying the lag order leads to massive size distortions in the PLR test, while over-specifying the VAR model order is less problematic. tend to complement one another when the sample size is small.…”

Section: The Cointegrated Case (R 0 = 1)supporting

confidence: 79%

“…The PLR tests can suffer from serious size distortions, even asymptotically, if a lag order smaller than the true order is used, while fitting unnecessary lags compromises finite sample power; see, among others, Boswijk and Franses (1992), Cheung and Lai (1993), Haug (1996) and Lütkepohl and Saikkonen (1999). Consequently, the practitioner needs to estimate both lag length and cointegration rank.…”

Section: There Is a Close Link Between (P)lr Tests And Information Crmentioning

confidence: 99%

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Determining the Cointegration Rank in Heteroskedastic Var Models of Unknown Order

et al. 2016

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We investigate the asymptotic and finite sample properties of a number of methods for estimating the cointegration rank in integrated vector autoregressive systems of unknown autoregressive order driven by heteroskedastic shocks. We allow for both conditional and unconditional heteroskedasticity of a very general form. We establish the conditions required on the penalty functions such that standard information criterion-based methods, such as the Bayesian information criterion [BIC], when employed either sequentially or jointly, can be used to consistently estimate both the cointegration rank and the autoregressive lag order. In doing so we also correct errors which appear in the proofs provided for the consistency of information-based estimators in the homoskedastic case by Aznar and Salvador (2002). We also extend the corpus of available large sample theory for the conventional sequential approach of Johansen (1995) and the associated wild bootstrap implementation thereof of Cavaliere, to the case where the lag order is unknown. In particular, we show that these methods remain valid under heteroskedasticity and an unknown lag length provided the lag length is first chosen by a consistent method, again such as the BIC. The relative finite sample properties of the different methods discussed are investigated in a Monte Carlo simulation study. The two best performing methods in this study are a wild bootstrap implementation of the Johansen (1995) procedure implemented with BIC selection of the lag length and joint IC approach (cf. Phillips, 1996) which uses the BIC to jointly select the lag order and the cointegration rank.

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Section: The Cointegrated Case (R 0 = 1)supporting

confidence: 79%

Section: There Is a Close Link Between (P)lr Tests And Information Crmentioning

confidence: 99%

Determining the Cointegration Rank in Heteroskedastic Var Models of Unknown Order

et al. 2016

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“…Specifically, we used the λ trace test (Johansen 1988(Johansen , 1991. Here the critical values were obtained by modifying the asymptotic ones from Osterwald-Lenum (1992) using the response surface regression results of Cheung and Lai (1993). Some results are reported in Table 3.…”

Section: Figurementioning

confidence: 99%

Cointegration tests of PPP: do they also exhibit erratic behaviour?

Caporale

Hanck

2009

Applied Economics Letters

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We analyse whether tests of PPP exhibit erratic behaviour (as previously reported by Caporale et al., 2003) even when (possibly unwarranted) homogeneity and proportionality restrictions are not imposed, and trivariate cointegration (stage-three) tests between the nominal exchange rate, domestic and foreign price levels are carried out (instead of stationarity tests on the real exchange rate, as in stage-two tests). We examine the US dollar real exchange rate vis-à-vis 21 other currencies over a period of more than a century, and find that stage-three tests produce similar results to those for stage-two tests, namely the former also behave erratically. This confirms that neither of these traditional approaches to testing for PPP can solve the issue of PPP.JEL Code: C12, C22, F31.

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“…For the US, we use a trace test adjusted for the presence of a stationary exogenous variable. For the EA, we look to the small sample corrected tests obtained by using the so-called Reinsel-Ahn correction factor (Cheung and Lai, 1993) and the Bartlett correction factors (Johansen, 2002).…”

Section: Ecb Working Paper Series No 1067mentioning

confidence: 99%

The dynamic effects of shocks to wages and prices in the United States and the Euro Area

Duarte

Marques

2012

Empir Econ

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Wage Dynamics NetworkThis paper contains research conducted within the Wage Dynamics Network (WDN). The WDN is a research network consisting of economists from the European Central Bank (ECB) and the national central banks (NCBs) of the EU countries. The WDN aims at studying in depth the features and sources of wage and labour cost dynamics and their implications for monetary policy. The specific objectives of the network are: i) identifying the sources and features of wage and labour cost dynamics that are most relevant for monetary policy and ii) clarifying the relationship between wages, labour costs and prices both at the firm and macro-economic level.The WDN is chaired by Frank Smets (ECB). Giuseppe Bertola (Università di Torino) and Julian Messina (Universitat de Girona) act as external consultants and Ana Lamo (ECB) as Secretary.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB, chairperson), Philip Vermeulen (ECB), Giuseppe Bertola, Julian Messina, Jan Babecký (CNB), Hervé Le Bihan (Banque de France) and Thomas Mathä (Banque centrale du Luxembourg).The paper is released in order to make the results of WDN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB. ECB Working Paper Series No 1067July 2009 Abstract 4 Non-technical summary 5

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FINITE‐SAMPLE SIZES OF JOHANSEN's LIKELIHOOD RATIO TESTS FOR COINTEGRATION

Cited by 945 publications

References 22 publications

Determining the Cointegration Rank in Heteroskedastic Var Models of Unknown Order

Determining the Cointegration Rank in Heteroskedastic Var Models of Unknown Order

Cointegration tests of PPP: do they also exhibit erratic behaviour?

The dynamic effects of shocks to wages and prices in the United States and the Euro Area

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