Abstract #300141

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JSM 2003 Abstract #300141
Activity Number: 254
Type: Contributed
Date/Time: Tuesday, August 5, 2003 : 12:00 PM to 1:50 PM
Sponsor: Business & Economics Statistics Section
Abstract - #300141
Title: Bartlett Correction for the LR Test in Cointegrating Models: A Bootstrap Approach
Author(s): Alessandra Canepa*+
Companies: University of Southampton Highfield
Address: , Southampton, , SO171BJ, England
Keywords: cointegrated models ; Bartlett correction ; bootstrap test ; hypothesis test
Abstract:

In this paper we approximate the finite sample expectation of the likelihood ratio test for linear restrictions on the cointegrating space using the bootstrap and we compare the finite sample properties of the asymptotic, the bootstrap, and the bootstrap Bartlett corrected likelihood ratio test. Our Monte Carlo results show that asymptotic Chi-square-based inference is quite inaccurate for sample sizes that are usually available in practical applications. By contrast, the Monte Carlo evaluation of the bootstrap and the bootstrap Bartlett corrected LR tests delivers remarkably accurate inference for the restrictions considered. We also propose bootstrapping the Bartlett corrected likelihood ratio test, but in this case the Bartlett correction is calculated analytically using the correction factor proposed by Johansen (2000). This procedure may produce an error of rejecting probability of order O(T^{-2}). The simulation results reveal that the bootstrapped procedure work remarkably well, although the response surface analysis reveals that the size distortion of the test heavily depends on the parameters space.

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