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Testing structural hypotheses on cointegration relations with small samples.

This study examines the finite-sample bias of Johansen's {1991} likelihood ratio tests for structural hypotheses on cointegration relations among economic variables through the Monte Carlo experiments. It is found that the Johansen tests with small samples are biased toward rejecting the null hypoth...

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Published in:Economic Inquiry Vol. 38; no. 4; pp. 629 - 641
Main Author: Zhou, Su
Format: Article
Published: Wiley-Blackwell October 2000
Subjects:
Statistical sampling
Statistical hypothesis testing
Monte Carlo method
Online Access:View this record in EBSCOhost
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        10.1111/j.1465-7295.2000.tb00041.x
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        atl: Testing structural hypotheses on cointegration relations with small samples.
      aug:
        au: Zhou, Su
      su:
        Statistical sampling
        Statistical hypothesis testing
        Monte Carlo method
      sug:
        subj:
          Statistical sampling
          Statistical hypothesis testing
          Monte Carlo method
      ab: This study examines the finite-sample bias of Johansen's {1991} likelihood ratio tests for structural hypotheses on cointegration relations among economic variables through the Monte Carlo experiments. It is found that the Johansen tests with small samples are biased toward rejecting the null hypotheses more often than what asymptotic theory suggests, even after the test statistics are adjusted by Sims's correction. A bootstrap method for obtaining problem-specific critical values for the tests is proposed. It is shown that using the bootstrap procedure may substantially reduce the small-sample bias. An empirical application of the procedure is demonstrated. (JEL C12, C22) Reprinted by permission of the publisher.
      pubtype: Academic Journal
      doctype: Article
      src: R
    language: English
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