Testing for cointegration in I(1) state space systems via a finite order approximation
The present paper employs the infinite order error correction representation of the observables of a I(1)
state space system and analyzes by simulation the small sample behaviour of the test on rank and on the
cointegrating vectors calculated via a finite order cointegrated vector autoregressive approximation. The
rank test performs very well in systems with a small number of states and stochastic trends (≤4) and a
medium number of observables (≤35) already for a sample of size T = 300 and it is still reliable with a