Testing for the Co-integrating Rank of a VAR Process with Level Shift and Trend Break

28 Pages Posted: 29 Feb 2008

See all articles by Carsten Trenkler

Carsten Trenkler

University of Mannheim

Pentti Saikkonen

University of Helsinki - Department of Statistics

Helmut Luetkepohl

European University Institute; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 0000

Abstract

A test for the co-integrating rank of a vector autoregressive (VAR) process with a possible shift and broken linear trend is proposed. The break point is assumed to be known. Our test is not a likelihood ratio test but the deterministic terms including the broken trends are removed first by a generalized least squares procedure. Then, a likelihood ratio-type test is applied to the adjusted series. The asymptotic null distribution of the test is derived and it is shown by a Monte Carlo experiment that the test has better small-sample properties in many cases than a corresponding Gaussian likelihood ratio test for the co-integrating rank. Moreover, response surface techniques can be used to easily obtain p-values of the test for any possible break date.

Suggested Citation

Trenkler, Carsten and Saikkonen, Pentti and Luetkepohl, Helmut, Testing for the Co-integrating Rank of a VAR Process with Level Shift and Trend Break (0000). Journal of Time Series Analysis, Vol. 29, Issue 2, pp. 331-358, March 2008, Available at SSRN: https://ssrn.com/abstract=1098434 or http://dx.doi.org/10.1111/j.1467-9892.2007.00558.x

Carsten Trenkler (Contact Author)

University of Mannheim

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Pentti Saikkonen

University of Helsinki - Department of Statistics ( email )

Finland
+09 191 24867 (Phone)

Helmut Luetkepohl

European University Institute ( email )

Villa San Paulo
Via della Piazzola 43
I-50133 Firenze
Italy
+39 055 4685 971 (Phone)
+39 055 4685 902 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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