Effects of the Misspecification of Cointegrating Ranks in Seasonal Models

초록

We investigate the effects of the misspecification of cointegrating(CI) ranks at other frequencies on the inference ofseasonal models at the frequency of interest; our study includestests for CI ranks and estimation of CI vectors. Earlier studiesfocused mostly on a single frequency corresponding to one seasonalroot at a time, ignoring possible cointegration at the remainingfrequencies. We investigate the effects of the misspecification,especially in finite samples, by adopting Gaussian reducedrank(GRR) estimation by Ahn and Reinsel (1994) that considerscointegration at all frequencies of seasonal unit rootssimultaneously. It is observed that the identification of theseasonal CI rank at the frequency of interest is sensitive to themisprespecification of the CI ranks at other frequencies, mainlywhen the CI ranks at the remaining frequencies are underspecified.

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