Tests of cointegrating rank with a trend-break

The conventional testing procedure may mislead one into accepting the null of no cointegration or the null of a cointegrating rank smaller than the true rank when there is a trend-break under the alternative hypothesis. This paper proposes tests for cointegrating rank that have power against the tre...

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Bibliographic Details
Published inJournal of econometrics Vol. 90; no. 2; pp. 215 - 237
Main Author Inoue, Atsushi
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.06.1999
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Econometrics
Subjects
Cointegrating rank
Cointegration
Cointegration analysis
Demand curves
Econometrics
Exact sciences and technology
Hypotheses
Income
Interest rates
Mathematical economics
Mathematics
Money
Parametric inference
Probability and statistics
Sciences and techniques of general use
Statistics
Testing
Trend break
United States > US
Trend break
C22
C32
C12
Cointegration
Cointegrating rank
Rank statistic
Selection problem
Demand function
Rank test
Trend analysis
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Summary:The conventional testing procedure may mislead one into accepting the null of no cointegration or the null of a cointegrating rank smaller than the true rank when there is a trend-break under the alternative hypothesis. This paper proposes tests for cointegrating rank that have power against the trend-break alternative. The proposed tests are applied to the US money demand function. The results support the Campbell–Perron conjecture: money, income and interest rates are cointegrated around a broken trend.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-4076
1872-6895
DOI:10.1016/S0304-4076(98)00042-6