Cointegrating Rank Selection in Models with Time-Varying Variance

Publication Type

Journal Article

Publication Date

8-2012

Abstract

Reduced rank regression (RRR) models with time varying heterogeneity are considered. Standard information criteria for selecting cointegrating rank are shown to be weakly consistent in semiparametric RRR models in which the errors have general nonparametric short memory components and shifting volatility provided the penalty coefficient Cn→∞ and Cnn→0 as n→∞. The AIC criterion is inconsistent and its limit distribution is given. The results extend those in Cheng and Phillips (2009a) and are useful in empirical work where structural breaks or time evolution in the error variances is present. An empirical application to exchange rate data is provided.

Keywords

Cointegrating rank, Heterogeneity, Information criteria, Model selection, Time varying variances

Discipline

Econometrics

Research Areas

Econometrics

Publication

Journal of Econometrics

Volume

169

Issue

2

First Page

155

Last Page

165

ISSN

0304-4076

Identifier

10.1016/j.jeconom.2012.01.022

Publisher

Elsevier

Additional URL

https://doi.org/10.1016/j.jeconom.2012.01.022

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