Working Papers, Hanken School of Economics
Tests Against Stationary and Explosive Alternatives in Vector Autoregressive Models
() and Jukka Nyblom
Abstract: The article proposes new tests for the number of unit
roots in vector autoregressive models based on the eigenvalues of the
companion matrix. Both stationary and explosive alternatives are
considered. The limiting distributions of test statistics depend only on
the number of unit roots. Size and power are investigated and it is found
that the new test against stationary alternatives compares favorably with
the widely used likelihood ratio test for the cointegrating rank. The
powers are prominently higher against explosive than stationary
alternatives. Some empirical examples are provided to show how to use the
new tests with real data.
Keywords: Asymptotic local power; Cointegration; Companion matrix; Unit root; (follow links to similar papers)
38 pages, December 14, 2005
This paper is published as: Ahlgren, Niklas and Nyblom, Jukka (2008), 'Tests against Stationary and Explosive Alternatives in Vector Autoregressive Models', Journal of Time Series Analysis, 29, 421-443.
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