Joint detection of unit roots and cointegration: Data-based simulation

Kosei Fukuda ()

Mathematics and Computers in Simulation (MATCOM), 2007, vol. 75, issue 1, 28-36

Abstract: This paper investigates two problems which a practitioner of Johansen's cointegration analysis faces: the pre-testing problem and the inconsistency problem. Johansen's cointegration analysis requires hypothesis testing at four stages, and thus Type I errors accumulate. In addition, it often occurs that the results of unit root tests and those of cointegration tests are inconsistent. In order to overcome these problems, an information-criterion-based model selection method for jointly detecting unit roots and cointegration is proposed. Through empirical applications and Monte Carlo simulations, the usefulness of this method is demonstrated.

Keywords: Cointegration; Data-based simulation; Information criterion; Model selection; Unit root (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:75:y:2007:i:1:p:28-36

DOI: 10.1016/j.matcom.2006.08.007

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