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A Bootstrap Cointegration Rank Test for Panels of VAR Models

Author

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  • Laurent A.F. Callot

    (School of Economics and Management, Aarhus University and CREATES)

Abstract

This paper proposes a sequential procedure to determine the common cointegration rank of panels of cointegrated VARs. It shows how a panel of cointegrated VARs can be transformed in a set of independent individual models. The likelihood function of the transformed panel is the sum of the likelihood functions of the individual Cointegrated VARs (CVAR) models. A bootstrap based procedure is used to compute empirical distributions of the trace test statistics for these individual models. From these empirical distributions two panel trace test statistics are constructed. The satisfying small sample properties of these tests are documented by means of Monte Carlo. An empirical application illustrates the usefullness of this tests.

Suggested Citation

  • Laurent A.F. Callot, 2010. "A Bootstrap Cointegration Rank Test for Panels of VAR Models," CREATES Research Papers 2010-75, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:create:2010-75
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    File URL: https://repec.econ.au.dk/repec/creates/rp/10/rp10_75.pdf
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    Cited by:

    1. Antonia Arsova & Deniz Dilan Karaman Örsal, 2018. "Likelihood-based panel cointegration test in the presence of a linear time trend and cross-sectional dependence," Econometric Reviews, Taylor & Francis Journals, vol. 37(10), pages 1033-1050, November.

    More about this item

    Keywords

    Rank test; Panel data; Cointegration; Bootstrap; Cross section dependence.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • 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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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