Bootstrap and Asymptotic Tests of Long‐run Relationships in Cointegrated Systems

Stefano Fachin

Oxford Bulletin of Economics and Statistics, 2000, vol. 62, issue 4, 543-551

Abstract: Hypothesis testing on cointegrating vectors based on the asymptotic distributions of the test statistics are known to suffer from severe small sample size distortion. In this paper an alternative bootstrap procedure is proposed and evaluated through a Monte Carlo experiment, finding that the Type I errors are close to the nominal signficance levels but power might be not entirely adequate. It is then shown that a combined test based on the outcomes of both the asymptotic and the bootstrap tests will have both correct size and low Type II error, therefore improving the currently available procedures.

Date: 2000
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