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Econometrics 2017, 5(3), 28; doi:10.3390/econometrics5030028

Likelihood Ratio Tests of Restrictions on Common Trends Loading Matrices in I(2) VAR Systems

1
Amsterdam School of Economics and Tinbergen Institute, University of Amsterdam, 1001 NJ Amsterdam, The Netherlands
2
Joint Research Centre, European Commission, 21027 Ispra (VA), Italy
*
Author to whom correspondence should be addressed.
Academic Editor: Katarina Juselius
Received: 28 February 2017 / Revised: 30 May 2017 / Accepted: 21 June 2017 / Published: 29 June 2017
(This article belongs to the Special Issue Recent Developments in Cointegration)
View Full-Text   |   Download PDF [251 KB, uploaded 29 June 2017]

Abstract

Likelihood ratio tests of over-identifying restrictions on the common trends loading matrices in I(2) VAR systems are discussed. It is shown how hypotheses on the common trends loading matrices can be translated into hypotheses on the cointegration parameters. Algorithms for (constrained) maximum likelihood estimation are presented, and asymptotic properties sketched. The techniques are illustrated using the analysis of the PPP and UIP between Switzerland and the US. View Full-Text
Keywords: cointegration; common trends; identification; VAR; I(2) cointegration; common trends; identification; VAR; I(2)
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Boswijk, H.P.; Paruolo, P. Likelihood Ratio Tests of Restrictions on Common Trends Loading Matrices in I(2) VAR Systems. Econometrics 2017, 5, 28.

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