Inference in Cointegrating Models: UK M1 Revisited

Jurgen Doornik, David Hendry and Bent Nielsen

Journal of Economic Surveys, 1998, vol. 12, issue 5, 533-572

Abstract: The paper addresses the practical determination of cointegration rank. This is difficult for many reasons: deterministic terms play a crucial role in limiting distributions, and systems may not be formulated to ensure similarity to nuisance parameters; finite‐sample critical values may differ from asymptotic equivalents; dummy variables alter critical values, often greatly; multiple cointegration vectors must be identified to allow inference; the data may be I(2) rather than I(1), altering distributions; and conditioning must be done with care. These issues are illustrated by an empirical application of multivariate cointegration analysis to a small model of narrow money, prices, output and interest rates in the UK.

Date: 1998
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