This article discusses identification problems in the fractionally cointegrated system of Johansen and Johansen and Nielsen. It is shown that several equivalent reparametrizations of the model associated with different fractional integration and cointegration parameters may exist for any choice of the lag-length when the true cointegration rank is known. The properties of these multiple nonidentified models are studied and a necessary and sufficient condition for the identification of the fractional parameters of the system is provided. The condition is named F(d). This is a generalization of the well-known I(1) condition to the fractional case. Imposing a proper restriction on the fractional integration parameter, d, is sufficient to guarantee identification of all model parameters and the validity of the F(d) condition. The article also illustrates the indeterminacy between the cointegration rank and the lag-length. It is also proved that the model with rank zero and k lags may be an equivalent reparameterization of the model with full rank and k − 1 lags. This precludes the possibility to test for the cointegration rank unless a proper restriction on the fractional integration parameter is imposed.

On the identification of fractionally cointegrated VAR models with the F (d) condition / Carlini, Federico; Santucci de Magistris, Paolo. - In: JOURNAL OF BUSINESS & ECONOMIC STATISTICS. - ISSN 0735-0015. - 37:1(2019), pp. 134-146. [10.1080/07350015.2017.1294077]

On the identification of fractionally cointegrated VAR models with the F (d) condition

CARLINI, FEDERICO;Santucci de Magistris, Paolo
2019

Abstract

This article discusses identification problems in the fractionally cointegrated system of Johansen and Johansen and Nielsen. It is shown that several equivalent reparametrizations of the model associated with different fractional integration and cointegration parameters may exist for any choice of the lag-length when the true cointegration rank is known. The properties of these multiple nonidentified models are studied and a necessary and sufficient condition for the identification of the fractional parameters of the system is provided. The condition is named F(d). This is a generalization of the well-known I(1) condition to the fractional case. Imposing a proper restriction on the fractional integration parameter, d, is sufficient to guarantee identification of all model parameters and the validity of the F(d) condition. The article also illustrates the indeterminacy between the cointegration rank and the lag-length. It is also proved that the model with rank zero and k lags may be an equivalent reparameterization of the model with full rank and k − 1 lags. This precludes the possibility to test for the cointegration rank unless a proper restriction on the fractional integration parameter is imposed.
Cofractional model; Fractional cointegration; Identification; Lag selection
On the identification of fractionally cointegrated VAR models with the F (d) condition / Carlini, Federico; Santucci de Magistris, Paolo. - In: JOURNAL OF BUSINESS & ECONOMIC STATISTICS. - ISSN 0735-0015. - 37:1(2019), pp. 134-146. [10.1080/07350015.2017.1294077]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/178221
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