Page 30 - Contributed Paper Session (CPS) - Volume 1

CPS658 Sagaren P.
Table 2
Co-integration Rank Test Using Trace Under Restriction

H0: H1: Drift in
Rank=r Rank>r Eigenvalu Trace Pr > ECM Drift in Process
Trace
0 0 e 24,032 0,0142 Constant Constant
0,4369
7,3754 0,1079
1 1 0,2246 2

Table 3
Hypothesis Test of the Restriction
Restricted
Rank Eigenvalue Eigenvalue DF Chi-Square Pr > ChiSq
0 0,2259 0,4369 2 16,00 0,0003
1 0,0206 0,2246 1 6,77 0,0093

Here :Rank=0 can be rejected and H0:Rank=1 cannot be rejected
0
implying that the series are Cointegrated. Further the p-values (Table 3) are
less than 0.05 showing that the model with restriction on the intercept term is
appropriate.
The model does not allow for any linear deterministic trends in the data.
The only deterministic components in the model are the intercepts in any co-
integrating relations, implying that some equilibrium means are non-zero. This
model has a restricted intercept term.

−0.07434 0.05796 0.24894 1−1
∆ = [ ] [ 2−1]

−0.0835 0.0651 0.2796
1
−0.65912 0.41718
+ [ ] ∆ +
−0.43642 −0.21037 −1
′
= [1 −0.77968 −3.34869] = [ −0.07434 ]
−0.0835
′
Therefore α = [ −0.07434 ] [1 −0.77968 −3.34869]
−0.0835

−0.07434 0.05796 0.24894
Π = [ ]
−0.0835 0.0651 0.2796

1
= [1 −0.77968 −3.34869] [ ]
2

1
= − 0.77968 − 3.34869 and 1 = 0.779868 + 3.34869
1
2
2

Case 3: There are no trends in the Co-integration space; the linear terms enter
the VECM as drift terms.
Table 4
Co-integration Rank Test Using Trace
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