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Econometrics 2018, 6(2), 26; https://doi.org/10.3390/econometrics6020026

Johansen’s Reduced Rank Estimator Is GMM

Department of Economics, University of Wisconsin, Madison, WI 53706, USA
Received: 30 January 2018 / Revised: 9 March 2018 / Accepted: 16 May 2018 / Published: 18 May 2018
(This article belongs to the Special Issue Celebrated Econometricians: Katarina Juselius and Søren Johansen)
Full-Text   |   PDF [225 KB, uploaded 18 May 2018]

Abstract

The generalized method of moments (GMM) estimator of the reduced-rank regression model is derived under the assumption of conditional homoscedasticity. It is shown that this GMM estimator is algebraically identical to the maximum likelihood estimator under normality developed by Johansen (1988). This includes the vector error correction model (VECM) of Engle and Granger. It is also shown that GMM tests for reduced rank (cointegration) are algebraically similar to the Gaussian likelihood ratio tests. This shows that normality is not necessary to motivate these estimators and tests. View Full-Text
Keywords: GMM; VECM; reduced rank GMM; VECM; reduced rank
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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Hansen, B.E. Johansen’s Reduced Rank Estimator Is GMM. Econometrics 2018, 6, 26.

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