Job Seekers
Jobs By Location
 New York Chicago London Tokyo Singapore Canada Australia India
Jobs by Programming
 Java C# .NET Matlab C++ Database Excel
Jobs by Role
 Analyst Developer Structurer Junior Quant Senior Quant Strategist Rich Quant
Jobs by Sector
 Hedge Fund Credit Derivatives Mortgage Trading Equity Derivates Front Office Fixed Income
 Latest Jobs Latest Code Latest Papers
 Quick Search:    (AJAX based: No need to press button)

SmartFAQ is developed by The SmartFactory (http://www.smartfactory.ca), a division of InBox Solutions (http://www.inboxsolutions.net)

FAQs on Johansen's Cointegration test
What is Johansen's cointegration test?
Johansen's testing is
1.A method to method to test if a subset in a set of series has cointegration
2.Can determine cointegrating systems (i.e, details of how the movements occur)
3.Uses VAR (vector auto regression)

What is the original VAR which is modelled?
It is a series of g variables (g>=2) that are I(1) and which are thought to be cointegrated.

Following is setup of the VAR:

$y_1 = {\beta}_1 y_{t-1} + {\beta}_2 y_{t-2} + ... + {\beta}_k y_{t-k} + u_t$

where
$${\beta}_i$$ is g x g matrix, and $${y}_i$$ is g x 1 vector

What is the vector error correction model considered?

${\Delta}y_t = {\Pi} y_{t-k} + {\Gamma}_1 {\Delta}y_{t-1} + {\Gamma}_2 {\Delta}y_{t-2} + ... + {\Gamma}_{k-1} {\Delta}y_{t-(k-1)} + u_t$
where

${\Pi} = \left( \sum_{i=1}^k {\beta}_i \right) - I_g$
${\Gamma}_i = \left( \sum_{j=1}^i {\beta}_j \right) - I_g$

What is the most important matrix used in Johansen's test?
The $$\Pi$$ matrix in the above equation is used for eigen decomposition. The rank of this

matrix is used for finding the no. of cointegration vectors.

How do I interpret Johansen's $$\Pi$$ test results?

Let us consider the following example output when a set of 5 series was used

H0 : Rank<=x Test statistic Critical values 90 95 99 0 134.468893 31.2379 33.8777 39.3693 1 99.202023 25.1236 27.5858 32.7172 2 12.03620412 18.8928 21.1314 25.865 3 5.378365285 12.2971 14.2639 18.52 4 0.200411475 2.7055 3.8415 6.6349 

The above output is from

Discuss or give feedback? Just enter your message and click on submit. No registration is required.

Note: A copy of this message will also be emailed to the submitter of this link

The comments are owned by the poster. We aren't responsible for their content.

Anonymous
Posted: 2011/6/2 2:51  Updated: 2011/6/2 2:51
FAQs on Johansen's Cointegration test
I would like to test causality between liqidity and inflation using cointegration

Anonymous
Posted: 2011/7/1 9:14  Updated: 2011/7/2 12:27
FAQs on Johansen's Cointegration test
can i use johansen cointegration method to test causality between two variables

Anonymous
Posted: 2011/7/14 11:34  Updated: 2011/7/15 18:44
FAQs on Johansen's Cointegration test
what are the steps involved in using eviews to determine cointegration using johansen test

Anonymous
Posted: 2011/12/26 4:16  Updated: 2012/1/28 18:52
FAQs on Johansen's Cointegration test
my problems is how to separate trace statistic and max likehood statistics and how do i got the critical value of each from the result obtained after computing johansen from the eviews

Anonymous
Posted: 2012/4/23 8:53  Updated: 2012/5/6 19:17
FAQs on Johansen's Cointegration test
how do i intepret johanson cointegration result output