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Testing for Cointegration Using the Johansen Methodology when Variables are Near-Integrated, Pär Österholm, Erik Hjalmarsson

We investigate the properties of Johansen's (1988, 1991) maximum eigenvalue and trace tests for cointegration under the empirically relevant situation of near-integrated variables. Using Monte Carlo techniques, we show that in a system with near-integrated variables, the probability of reaching an erroneous conclusion regarding the cointegrating rank of the system is generally substantially higher than the nominal size. The risk of concluding that completely unrelated series are cointegrated is therefore non-negligible. The spurious rejection rate can be reduced by performing additional tests of restrictions on the cointegrating vector(s), although it is still substantially larger than the nominal size
Table Of Contents
Contents; I. Introduction; II. Testing for Cointegration Using Johansen's Methodology; III. Monte Carlo Study; A. Setup; B. Results; 1. Spurious Rejection Frequency for Bivariate System; 2. Spurious Rejection Frequency for Trivariate System; IV. An Empirical Illustration; Tables; 1. Results from Augmented Dickey-Fuller Test; Figures; 3. Data; 2. Results from Cointegration Test; 3. Results from Hypothesis Tests on the Cointegrating Vector; V. Conclusion; Appendix; References
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (21 p.)
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Form Of Item

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