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Title:Testing for the cointegrating rank of a VAR process with level shift and trend break PDF Logo
Authors:Trenkler, Carsten
Saikkonen, Pentti
Lütkepohl, Helmut
Issue Date:2006
Series/Report no.:SFB 649 discussion paper 2006,067
Abstract:A test for the cointegrating 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. The setup is a VAR process for cointegrated variables. The tests are not likelihood ratio tests but the deterministic terms including the broken trends are removed first by a GLS procedure and 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 cointegrating rank.
Subjects:Cointegration
structural break
vector autoregressive process
error correction model
JEL:C32
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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