Multivariate Lagrange Multiplier Tests for Fractional Integration

U of Aarhus, Economics Working Paper No. 2002-18

Posted: 6 Jan 2003

See all articles by Morten Ørregaard Nielsen

Morten Ørregaard Nielsen

Aarhus University - Department of Economics and Business Economics

Multiple version iconThere are 2 versions of this paper

Abstract

We introduce a multivariate Lagrange Multiplier (LM) test for fractional integration. We derive and analyze the LM statistic and show that it is asymptotically chi-squared distributed under local alternatives, and that, under Gaussianity, the LM test is asymptotically efficient against local alternatives. It is shown that the regression variant in Breitung & Hassler (2002, Journal of Econometrics 110, 167-185) is not equivalent to the LM test in the multivariate case, although it is in the univariate case. A generalization of the LM test that explicitly allows for different integration orders for each variate is also introduced. The finite sample properties of the LM test are evaluated and compared to the Breitung & Hassler (2002) test by Monte Carlo experiments. An application to multivariate time series of real interest rates for six countries is offered, demonstrating that more clear-cut evidence can be drawn from multivariate tests compared to conducting several univariate tests.

Keywords: Asymptotic Local Power, Efficient Test, Fractional Integration, Lagrange Multiplier Test, Multivariate Fractional Unit Root, Nonstationarity

JEL Classification: C32

Suggested Citation

Nielsen, Morten Orregaard, Multivariate Lagrange Multiplier Tests for Fractional Integration. U of Aarhus, Economics Working Paper No. 2002-18, Available at SSRN: https://ssrn.com/abstract=354441

Morten Orregaard Nielsen (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

Denmark

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
657
PlumX Metrics