Publication:
Making Wald Tests Work for Cointegrated Systems

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URI: http://hdl.handle.net/10016/3306
ISSN: 1532-4168
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wald_dolado_ER_1996_ps.pdf (998.56 KB)
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1996
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Taylor and Francis
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Wald tests of restrictions on the coefficients of vector autoregressive (VAR) processes are known to have nonstandard asymptotic properties for 1(1) and cointegrated systems of variables. A simple device is proposed which guarantees that Wald tests have asymptotic X2-distributions under general conditions. If the true generation process is a VAR(p) it is proposed to fit a VAR(p+l) to the data and perform a Wald test on the coefficients of the first p lags only. The power properties of the modified tests are studied both analytically and numerically by means of simple illustrative examples.
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Econometrics Reviews, 1996, 15, 4, p. 369-386
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