Statistical inference on cointegration rank in error correction models with stationary covariates

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Abstract

This paper aims to extend the cointegration rank test to error correction models with exogenous stationary covariates. The distribution of the likelihood ratio statistic is a function of the canonical correlations between the equation errors with and without the covariates. The distribution approaches the chi-squared distribution as the stationary covariates lower the canonical correlations. This enables more powerful inference concerning the determination of the cointegration rank.

Original languageEnglish
Pages (from-to)339-385
Number of pages47
JournalJournal of Econometrics
Volume85
Issue number2
DOIs
Publication statusPublished - 1998 Aug
Externally publishedYes

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Keywords

  • Cointegration
  • Error correction models
  • Power
  • Stationary covariates

ASJC Scopus subject areas

  • Economics and Econometrics

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