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The Full Information Maximum Likelihood Procedure for Inference on Cointegration - with Applications

Author

Listed:
  • Søren Johansen

    (Institute of Mathematical Statistics, University of Copenhagen)

  • Katarina Juselius

    (Institute of Economics, University of Copenhagen)

Abstract

This paper gives a systematic application of maximum likelihood inference concerning cointegration vectors in non-stationary vector valued autoregressive time series models with Gaussian errors, where the model includes a constant term and seasonal dummies. The hypothesis of cointegration is given a simple parametric form in terms of cointegration vectors and their weights. The relation between the constant term and a linear trend in the non-stationary part of the process is discussed and related to the weights. Tests for the presence of cointegration vectors, both with and without a linear trend in the non-stationary part of the process are derived. Then estimates and tests under linear restrictions on the cointegration vectors and their weights are given. The methods are illustrated by data from the Danish and the Finnish economy on the demand for money.

Suggested Citation

  • Søren Johansen & Katarina Juselius, 1989. "The Full Information Maximum Likelihood Procedure for Inference on Cointegration - with Applications," Discussion Papers 89-11, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:8911
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    Cited by:

    1. van Amano, Robert A & Norden, Simon, 1998. "Exchange Rates and Oil Prices," Review of International Economics, Wiley Blackwell, vol. 6(4), pages 683-694, November.
    2. Javier Gómez P., 1998. "La Demanda Por Dinero En Colombia," Borradores de Economia 2969, Banco de la Republica.
    3. Emmy, F.A. & Baharom, A.H. & Radam, Alias & Illisriyani, I., 2009. "Export and Import Cointegration in Forestry Domain: The Case of Malaysia," MPRA Paper 16673, University Library of Munich, Germany.
    4. Alessandro Lanza & Matteo Manera & Margherita Grasso & Massimo Giovannini, 2003. "Long-run Models of Oil Stock Prices," Working Papers 2003.96, Fondazione Eni Enrico Mattei.
    5. Bardsen, G. & Klovland, J.T., 1990. "Finding The Rigth Nominal Anchor: The Cointegration Of Money, Credit And Nominal Income In Norway," The Warwick Economics Research Paper Series (TWERPS) 350, University of Warwick, Department of Economics.
    6. Sangjoon Jun, 2006. "The Nexus between IT Investment and Banking Performance in Korea," Global Economic Review, Taylor & Francis Journals, vol. 35(1), pages 67-96.
    7. Shoesmith, Gary L., 2007. "Friedman's Hypothesis and Cross-Regional Inflation Dispersion," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 3(1-2), pages 1-11.
    8. Amano, R. A. & van Norden, S., 1998. "Oil prices and the rise and fall of the US real exchange rate," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 299-316, April.
    9. Choe, Young Chan & Koo, Won W., 1993. "Monetary Impacts On Prices In The Short And Long Run: Further Results For The United States," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(2), pages 1-14, December.
    10. World Bank, 2006. "Is There a New Vision for Maghreb Economic Integation? Volume 2. Annex," World Bank Publications - Reports 19624, The World Bank Group.
    11. Patel, Ajay & Shoesmith, Gary L., 2004. "Term structure linkages surrounding the Plaza and Louvre accords: Evidence from Euro-rates and long-memory components," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2051-2075, September.
    12. Vítor Manuel de Sousa Gabriel & María Belén Lozano & Maria Fernanda Ludovina Inácio Matias, 2022. "The Low‐carbon Equity Market: A New Alternative for Investment Diversification?," Global Policy, London School of Economics and Political Science, vol. 13(1), pages 34-47, February.
    13. Cushman, David O. & Sang Sub Lee & Thorgeirsson, Thorsteinn, 1996. "Maximum likelihood estimation of cointegration in exchange rate models for seven inflationary OECD countries," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 337-368, June.
    14. Vogelvang, E., 1990. "Testing for co-integration with spot prices of some related agricultural commodities," Serie Research Memoranda 0001, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    15. Pene Kalulumia, 2000. "Government Debt, Interest Rates And International Capital Flows: Evidence From Cointegration," Cahiers de recherche 00-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    16. Gary Shoesmith, 2010. "Four factors that explain both the rise and fall of US crime, 1970-2003," Applied Economics, Taylor & Francis Journals, vol. 42(23), pages 2957-2973.
    17. Massimo Giovannini & Margherita Grasso & Alessandro Lanza & Matteo Manera, 2006. "Conditional correlations in the returns on oil companies stock prices and their determinants," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 33(4), pages 193-207, September.
    18. Bruce G. Resnick & Gary L. Shoesmith, 2011. "Information Transmission in the World Money Markets," European Financial Management, European Financial Management Association, vol. 17(1), pages 183-200, January.
    19. Petrovic, Pavle & Vujosevic, Zorica, 1996. "Comment on Frenkel and Taylor's "Money Demand and Inflation in Yugoslavia, 1980-1989"," Journal of Macroeconomics, Elsevier, vol. 18(1), pages 177-185.
    20. Vogelvang, E., 1990. "The program 'Pjohcoin' for applications of the co-integration tests of Johansen," Serie Research Memoranda 0084, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    21. Royfaizal, R. C & Lee, C & Mohamed, Azali, 2007. "Asean-5+3 And Us Stock Markets Interdependence Before, During And After Asian Financial Crisis," MPRA Paper 10263, University Library of Munich, Germany.
    22. Emmy, F.A. & Baharom, A.H. & Alias, Radam & Mohd Rusli, Yacob, 2009. "Trade Sustainability in the Forestry Domain: Evidence from Malaysia using Johansen and Bound Test Method," MPRA Paper 17487, University Library of Munich, Germany.

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