Discussion Papers 2023
CIRJE-F-1216 | "Johansen Test with Fourier-Type Smooth Nonlinear Trends in Cointegrating Relations" |
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Author Name | Takamitsu Kurita and Mototsugu Shintani |
Date | June 2023 |
Full Paper | PDF file |
Remarks |
Abstract |
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We develop methodology for testing cointegrating rank in vector autoregressive (VAR) models in the presence of Fourier-type smooth nonlinear deterministic trends in cointegrating relations. The limiting distribution of log-likelihood ratio test statistics is derived and approximated limit quantiles are tabulated. A sequential procedure to select cointegrating rank is evaluated by Monte Carlo simulations. Our empirical application to economic data also demonstrates the usefulness of the proposed methodology in a practical context. |
Keywords: Vector autoregressive systems; Smooth nonlinear deterministic trends; Trigonometric functions; Cointegrating rank; Log-likelihood ratio test statistics; Monte Carlo experiments |