Inference on cointegrating ranks using lr and lm tests based on pseudo-likelihoods

André Lucas

24 citations0/0 files storedEconometric Reviews

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Monetary Policy and Economic Impact Advanced Statistical Methods and Models Diverse Scientific and Economic Studies

Abstract

This paper considers Lagrange Multiplier (LM) and Likelihood Ratio (LR) tests for determining the cointegrating rank of a vector autoregressive system. n order to deal with outliers and possible fat-tailedness of the error process, non-Gaussian likelihoods are used to carry out the estimation. The limiting distributions of the tests based on these non-Gaussian pseudo-)likelihoods are derived. These distributions depend on nuisance parameters. An operational procedure is proposed to perform inference. It appears that the tests based on non-Gaussian pseudo-likelihoods are much more powerful than their Gaussian counterparts if the errors are fat-tailed. Moreover, the operational LM-type test has a better overall performance than the LR-type test. Copyright O 1998 by Marcel Dekker, Inc.

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References

1988Statistical analysis of cointegration vectors 1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1994Testing the covariance stationarity of heavy-tailed time series: An overview of the theory with applications to several financial datasets 1996Tests for cointegration a Monte Carlo comparison 1989Extremal behaviour of solutions to a stochastic difference equation with applications to arch processes 1994The Effects of Additive Outliers on Tests for Unit Roots and Cointegration 1994Stylized Facts of Nominal Exchange Rate Returns 1998Outlier robust analysis of long-run marketing effects for weekly scanning data

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