SmartFAQ is developed by The SmartFactory (http://www.smartfactory.ca), a division of InBox Solutions (http://www.inboxsolutions.net)
How do I calculate no of lags required for Johansen's cointegration test?
Requested and Answered by Vanna on 09-Feb-2011 21:02 (3687 reads)
There are mainly 2 categories of approaches:
1.Use Likelihood ratio test
2.Use Information criteria.
Please checkout section 2.1.2 in paper VECM diagnostics by Charles Lindsey for the formulas and an explanation.
Following is an example algorithm to calculate lag oder:
1.Start with assumption that it is a VAR(1) model.
2.Perform multi variate OLS of the VAR model to determine the matrix of coefficients (spreadhseet vector auto regression could also be used for this)
3.After finding the coefficient matrix (found in betavals sheet if you have used the above file), multiply that matrix with the series of observations.
4.Calculate covariance matrix of the residual series.
5.Find AIC using formula mentioned in page 5 of Charle's paper.
6.Goto step 1, and try with VAR(2), and so on
7.Find the lag which gives minimum value of AIC. This is the suggested lag.
8. Use this lag as the input parameter in Johansens' cointegration test
1.Use Likelihood ratio test
2.Use Information criteria.
Please checkout section 2.1.2 in paper VECM diagnostics by Charles Lindsey for the formulas and an explanation.
Following is an example algorithm to calculate lag oder:
1.Start with assumption that it is a VAR(1) model.
2.Perform multi variate OLS of the VAR model to determine the matrix of coefficients (spreadhseet vector auto regression could also be used for this)
3.After finding the coefficient matrix (found in betavals sheet if you have used the above file), multiply that matrix with the series of observations.
4.Calculate covariance matrix of the residual series.
5.Find AIC using formula mentioned in page 5 of Charle's paper.
6.Goto step 1, and try with VAR(2), and so on
7.Find the lag which gives minimum value of AIC. This is the suggested lag.
8. Use this lag as the input parameter in Johansens' cointegration test
Discuss or give feedback? Just enter your message and click on submit. No registration is required.
|
The comments are owned by the poster. We aren't responsible for their content.
|
Discuss or give feedback? Just enter your message and click on submit. No registration is required.