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Effects of a signal-to-noise ratio on finite sample inference for cointegrating vectors

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  • Kurita, Takamitsu

Abstract

This paper investigates effects of a signal-to-noise ratio on finite sample inference for cointegrating vectors. The ratio is defined as a measure of the magnitude of a permanent shock relative to a transitory shock. According to Monte Carlo experiments conducted in this paper, a high signal-to-noise ratio tends to reduce size distortions of a likelihood-based test statistic for a hypothesis on cointegrating vectors; a low signal-to-noise ratio is, in contrast, prone to amplify the size distortions. The experiments demonstrate that the performance of a bootstrap method also depends on the volume of the signal-to-noise ratio. Finally, an empirical illustration is presented.

Suggested Citation

  • Kurita, Takamitsu, 2010. "Effects of a signal-to-noise ratio on finite sample inference for cointegrating vectors," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 80(10), pages 2033-2039.
    • Handle: RePEc:eee:matcom:v:80:y:2010:i:10:p:2033-2039
    DOI: 10.1016/j.matcom.2010.03.008
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    References listed on IDEAS

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    1. Takamitsu Kurita, 2007. "A dynamic econometric system for the real yen–dollar rate," Empirical Economics, Springer, vol. 33(1), pages 115-149, July.
    2. Panagiotis Mantalos & Ghazi Shukur, 1998. "Size and Power of the Error Correction Model Cointegration Test. A Bootstrap Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 249-255, May.
    3. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-348, August.
    4. repec:bla:obuest:v:62:y:2000:i:4:p:543-51 is not listed on IDEAS
    5. Hansen, Gerd & Kim, Jeong-Ryeol & Mittnik, Stefan, 1998. "Testing cointegrating coefficients in vector autoregressive error correction models," Economics Letters, Elsevier, vol. 58(1), pages 1-5, January.
    6. Stefano Fachin, 2000. "Bootstrap and Asymptotic Tests of Long‐run Relationships in Cointegrated Systems," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(4), pages 543-551, September.
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    More about this item

    Keywords

    Signal-to-noise ratio; Permanent shock; Transitory shock; Finite sample inference; Cointegrating vector;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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