Dear All,
Harris and Sollis cite Johansen's suggestion in choosing which of the three models (Models 2, 3, and 4) in constructing a VEC model, one needs "to test the joint hypothesis of both the rank order and the deterministic components, based on the so-called Pantula principle." (p. 134-5)
"All three models are estimated and the results are presented from the most restrictive alternative (i.e., r=0 and Model 2) through to the least restrictive alternative (i.e., r=n-1 and Model 4). The test procedure is then to move through from the least restrictive model and at each stage to compare the trace test statistic to its critical value and only stop the first time the null hypothesis is not rejected."
Then, using, UK real demand for money data, they present their Table 5.5 that lists the trace statistics for three different models at each rank level and the statistic for which the first time the null is not rejected is marked with a star.
I believe adding this procedure under Time Series section of the Model menu for those of us who are not good at coding will be very helpful. However, for its urgency for me, if someone could help me in coding this procedure using one of gretl's sample data, I'll really appreciate it.
Thank you.
Alp
P.S. I tried but was not able to use "Model table" in icon view for this specific purpose.
Harris, R and R. Sollis (2003) Applied Time Series Modelling and Forecasting, p.134-5.
Johansen, S. (1992) Determination of cointegration rank in the presence of a linear trend, Oxford Bulletin of Economics and Statistics, 54, 383-397.