- Testing identifiablility of cointegrating vectors
- Journal of Business & Economic Statistics
- Volume | Issue number
- 14 | 2
- Number of pages
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
This article analyzes the identification and normalization of cointegrating vectors. Normalizing a cointegrating relation with respect to one of the relevant variables is with loss of generality; and restrictions that are supposed to identify a vector may fail to do so for particular parameter values. I propose to tackle both problems by testing whether particular rank conditions are violated. It is shown that Johansen and Juselius's class of likelihood ratio statistics for structural hypotheses in a cointegrated Gaussian vector autoregression may be used for this purpose. The tests are applied to a model of the demand for money in the United Kingdom.
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