Testing for Cointegration Using Principal Component Measures

Peter Phillips and Sam Ouliaris

No 809R, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: This paper studies cointegrated systems of multiple time series which are individually well described as integrated processes (with or without a drift). Necessary and sufficient conditions for cointegration are given. These conditions form the basis for a new class of statistical procedures designed to test for cointegration. The new procedures rely on principal components methods. They are simple to employ and they involve only the standard normal distribution. Monte Carlo simulations reported in the paper indicate that the new procedures provide simple and apparently rather powerful diagnostics for the detection of cointegration. Some empirical applications to macroeconomic data are conducted.

Keywords: Latent root; spectral density matrix; time series (search for similar items in EconPapers)
Pages: 38 pages
Date: 1986, Revised 1987-07
Note: No page 2; CFP 723.
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Published in Journal of Economic Dynamics and Control (1988), 12: 205-230

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Persistent link: https://EconPapers.repec.org/RePEc:cwl:cwldpp:809r

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