A Monte Carlo Study on the Pitfalls in Determining Deterministic Components in Cointegrating Models

@inproceedings{Hjelm2002AMC,
  title={A Monte Carlo Study on the Pitfalls in Determining Deterministic Components in Cointegrating Models},
  author={G{\"o}ran Hjelm and Martin Johansson},
  year={2002}
}
In this paper we examine, by means of Monte Carlo simulation, the properties of the so called ’Pantula principle’ for the simultaneous determination of rank and deterministic components in a vector error correction model. Examining the ...ve models contained within the Johansen methodology, we ...nd that the ’Pantula principle’ is heavily biased towards choosing model 3 (unrestriced constant) when model 4 (restricted trend) is the true one. We suggest a modi...cation that reduces this bias to… CONTINUE READING

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