Johansen Cointegration Test

[jmagomez]

Dear Fellows,

I have a question: when we make Johansen Cointegration Test and we get Trace Test indicating three cointegration equations and MaxEigenvalue indicating no cointegration equation. We would prefer the MaxEigenvalue, because it is more tough than Trace test, wouldn't we?

And what does it mean three cointegration equations? I don't understand. Normally, we obtain only one cointegration equation.

Best Regards, José.

[nishantvats12]

Hi Jose,

Max eigen value is in fact stricter than trace test. Also when one is dealing with a vector system greater than a bi-variate structure it is advisable to use max eigen test statistic rather than trace.
When we have a multi-variate structure of n variables we can obtain at max (n-1) co-integrating equations.

Hope this helps.

[jmagomez]

Thanks a lot, Nishanvats.

But what does it mean three cointegrations? Another kind of relation between the variables?

Best Regards, José.

[nishantvats12]

You might consider referring to this pdf for a better and easy understanding.
http://wps.aw.com/wps/media/objects/238 ... _EX07W.pdf

[jmagomez]

Thanks a lot, Nishantvats!

It is a good material and I saw the website, it has a lot of good presentations.

And do you know about Kalman Filter? And how to make it happen with Eviews?

Best Regards, José.

[nishantvats12]

Hi Jose,

i would advice you to go through the following pdf especially its chapter 11. Kalman filter is a concept of physics adopted widely into electrical engineering and also into time series Econometrics. It is basicallya two step procedure. The treatment in the pdf is very mathematical so kindly brush up some of your maths tool before dipping yourself into the pdf.
http://www.math.kth.se/matstat/gru/sf2943/ts.pdf

I am glad that you did like that pdf. Also which website were referring to. Could you share the link.

Regards
Nishant Vats

[jmagomez]

Dear Nishant Vats,

Thanks a lot for all your help! And if you have more material about Kalman Filter, Cointegration and Error correction Models and if you could send me I would appreciate.

Best Regards, José.