Unit roots and cointegration modelling through a family of flexible information criteria

Abstract

We propose a fast and consistent procedure to detect unit roots based on subspace methods. It has three distinctive features. First, the same method can be applied to single or multiple time series. Second, it employs a flexible family of information criteria, whose loss functions can be adapted to the statistical properties of the data. Last, it does not require the specification of a model for the analysed series. In addition, we provide a subspace-based consistent estimator for the cointegrating rank and the cointegrating matrix. Simulation exercises show that these procedures have good finite sample properties.

Keywords:

• state-space models
• subspace methods
• unit roots
• cointegration

Mathematics Subject Classification :

• 91B84-62M10

Acknowledgements

The authors gratefully acknowledge financial support from Ministerio de Educación y Ciencia, ref. ECO2008-02588/ECON.