Date: 2006
Type: Working Paper
Testing for the Cointegrating Rank of a VAR Process with Level Shift and Trend Break
Working Paper, EUI ECO, 2006/29
TRENKLER, Carsten, SAIKKONEN, Pentti, LUETKEPOHL, Helmut, Testing for the Cointegrating Rank of a VAR Process with Level Shift and Trend Break, EUI ECO, 2006/29 - https://hdl.handle.net/1814/6306
Retrieved from Cadmus, EUI Research Repository
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 ¯rst by a GLS proce-
dure 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.
Cadmus permanent link: https://hdl.handle.net/1814/6306
ISSN: 1725-6704
Series/Number: EUI ECO; 2006/29
Publisher: European University Institute