Semiparametric error-correction models for cointegration with trends: Pseudo-Gaussian and optimal rank-based tests of the cointegration rank

This paper provides pseudo-Gaussian and locally optimal rank-based tests for the cointegration rank in linear cointegrated error-correction models with common trends and i.i.d. elliptical innovations. The proposed tests are asymptotically distribution-free, hence their validity does not depend on the actual distribution of the innovations. The proposed rank-based tests depend on the choice of scores, associated with a reference density that can freely be chosen. Under appropriate choices they are achieving the semiparametric efficiency bounds; when based on Gaussian scores, they moreover uniformly dominate their pseudo-Gaussian counterparts. Simulations show that the asymptotic analysis provides an accurate approximation to finite-sample behavior. The theoretical results are based on a complete picture of the asymptotic statistical structure of the model under consideration.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


Mission en strategy           •           Network           •           Organisation           •          Magazine
Board Brief            •            Actionplan 2023-2027           •           Researchagenda


Our partners

View all partners