Testing for Cointegration in a System of Equations

In Choi and Byung Chul Ahn

Econometric Theory, 1995, vol. 11, issue 05, pages 952-983

Abstract: This paper introduces various consistent tests for the null of cointegration against the alternative of noncointegration that can be applied to a system of equations as well as to a single equation. The tests are analogs of Choi and Ahn's (1993, Testing the Null of Stationarity for Multiple Time Series, working paper, The Ohio State University) multivariate tests for the null of stationarity and use Park's (1992, Econometrica 60, 119 125) fully modified ordinary least-squares (OLS) procedure is used. Also, is shown that difficulties arise when OLS residuals are used to formulate the tests. Small-scale simulation results are reported to examine the finite sample performance of the tests. The tests are shown to work reasonably wellin finite samples. In particular, it is illustrated that using the multivariate tests introduced in this paper can be a better testing strategy in terms of the finite sample size and power than applying univariate tests several times to each equation in a system of equations.

Date: 1995
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