Improved likelihood ratio tests for cointegration rank in the VAR model


Speaker:Peter Boswijk, Universiteit van Amsterdam
Date: Wednesday 16 November 2011
Time: 16:15
Location: STC/D

Further details

Jansson and Nielsen (2011) recently proposed a class of likelihood ratio tests for a unit root that are nearly efficient, i.e., virtually indistinguishable from the power envelope. The present paper generalizes their approach to likelihood ratio tests for cointegration rank. We consider two versions of the test, depending on whether the parameter space is restricted to exclude explosive roots under the alternative. The new tests are shown to yield substantial improvements in asymptotic local power compared to existing tests for cointegration rank, including currently available tests based on generalized least-squares (or quasi-differencing) detrending.