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TESTING FOR THE COINTEGRATING RANK OF A VAR PROCESS WITH AN INTERCEPT

Published online by Cambridge University Press:  01 June 2000

Pentti Saikkonen  and
Helmut Lütkepohl
Pentti Saikkonen
Affiliation:
University of Helsinki
Helmut Lütkepohl
Affiliation:
Humboldt University
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Abstract

Testing the cointegrating rank of a vector autoregressive process with an intercept is considered. In addition to the likelihood ratio (LR) tests developed by Johansen and Juselius (1990, Oxford Bulletin of Economics and Statistics, 52, 169–210) and others we also consider an alternative class of tests that is based on estimating the trend parameters of the deterministic term in a different way. The asymptotic local power of these tests is derived and compared to that of the corresponding LR tests. The small sample properties are investigated by simulations. The new tests are seen to be substantially more powerful than conventional LR tests.

Type
Research Article
Information
Econometric Theory , Volume 16 , Issue 3 , June 2000 , pp. 373 - 406
Copyright
© 2000 Cambridge University Press

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