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Bootstrap Determination of the Co-Integration Rank in Vector Autoregressive Models

UNSPECIFIED (2012) 'Bootstrap Determination of the Co-Integration Rank in Vector Autoregressive Models.' Econometrica, 80 (4). 1721 - 1740. ISSN 0012-9682

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Abstract

This paper discusses a consistent bootstrap implementation of the likelihood ratio (LR) co-integration rank test and associated sequential rank determination procedure of Johansen (1996). The bootstrap samples are constructed using the restricted parameter estimates of the underlying vector autoregressive (VAR) model that obtain under the reduced rank null hypothesis. A full asymptotic theory is provided that shows that, unlike the bootstrap procedure in Swensen (2006) where a combination of unrestricted and restricted estimates from the VAR model is used, the resulting bootstrap data are I(1) and satisfy the null co-integration rank, regardless of the true rank. This ensures that the bootstrap LR test is asymptotically correctly sized and that the probability that the bootstrap sequential procedure selects a rank smaller than the true rank converges to zero. Monte Carlo evidence suggests that our bootstrap procedures work very well in practice. © 2012 The Econometric Society.

Item Type: Article
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Jim Jamieson
Date Deposited: 30 Aug 2013 14:04
Last Modified: 08 Jan 2019 18:15
URI: http://repository.essex.ac.uk/id/eprint/7489

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