Long Run Canonical Correlations: Estimation and Inference
33 Pages Posted: 5 Nov 2009
Date Written: October 26, 2009
Abstract
This paper proposes methods for both the consistent estimation of so-called long run canonical correlations (LRCCs) and also testing the null hypothesis that a subset of LRCCs are zero. Two test statistics are proposed and their limiting distribution is derived under the null hypothesis. It is shown that the statistics provide a natural way for testing the asymptotic independence of two standardized sums. The tests are illustrated via an application to a cointegration model in which it is shown that inference is only tractable if a certain LRCC is zero.
Keywords: Long Run Canonical Correlations, Canonical Coherences, Asymptotic Independence of Partial Sums, Cointegration
JEL Classification: C12, C13, C22, C32
Suggested Citation: Suggested Citation