Numerically stable cointegration analysis

  • Authors:

  • Jurgen A. Doornik;R. J. O'Brien

  • Affiliations:

  • Nuffield College, University of Oxford, 0X1 INF, Oxford, UK;Department of Economics, University of Southampton, Southampton, UK

  • Venue:
  • Computational Statistics & Data Analysis
  • Year:
  • 2002

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Abstract

Cointegration analysis involves the solution of a generalized eigenproblem involving moment matrices and inverted moment matrices. These formulae are unsuitable for actual computations because the condition numbers of the resulting matrices are unnecessarily increased. The special structure of the cointegration procedure is used to achieve numerically stable computations, based on QR and singular value decompositions.