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Likelihood-Based Cointegration Analysis in Panels of Vector Error Correction Models (1999)
| Citations: | 28 - 3 self |
BibTeX
@MISC{Groen99likelihood-basedcointegration,
author = {Jan J. J. Groen and Frank Kleibergen and Jel Classi Cation C},
title = {Likelihood-Based Cointegration Analysis in Panels of Vector Error Correction Models},
year = {1999}
}
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Abstract
We propose in this paper a likelihood-based framework for cointegration analysis in panels of a xed number of vector error correction models. Maximum likelihood estimators of the cointegrating vectors are constructed using iterated Generalized Method of Moments estimators. Using these estimators we construct likelihood ratio statistics to test for a common cointegration rank across the individual vector error correction models, both with heterogeneous and homogeneous cointegrating vectors. The corresponding limiting distributions are a summation of the limiting behavior of Johansen (1991) trace statistics. We also incorporate both unrestricted and restricted deterministic components which are either homogeneous or heterogeneous. The proposed framework is applied on a data set of exchange rates and appropriate monetary fundamentals. The test results show strong evidence for the validity of the monetary exchange rate model within a panel of vector error correction models for three major...
Keyphrases
vector error correction model likelihood-based cointegration analysis individual vector error correction model xed number cointegrating vector strong evidence iterated generalized method monetary exchange rate model cointegration analysis restricted deterministic component homogeneous cointegrating vector likelihood-based framework moment estimator test result likelihood ratio statistic exchange rate appropriate monetary fundamental maximum likelihood estimator data set trace statistic corresponding limiting distribution common cointegration rank
