Low-frequency robust cointegration testing

Ulrich K. Müller and Mark Watson

Journal of Econometrics, 2013, vol. 174, issue 2, 66-81

Abstract: Standard inference in cointegrating models is fragile because it relies on an assumption of an I(1) model for the common stochastic trends, which may not accurately describe the data’s persistence. This paper considers low-frequency tests about cointegrating vectors under a range of restrictions on the common stochastic trends. We quantify how much power can potentially be gained by exploiting correct restrictions, as well as the magnitude of size distortions if such restrictions are imposed erroneously. A simple test motivated by the analysis in Wright (2000) is developed and shown to be approximately optimal for inference about a single cointegrating vector in the unrestricted stochastic trend model.

Keywords: Stochastic trends; Persistence; Size distortion; Interest rates; Term spread (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030440761300033X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Low-Frequency Robust Cointegration Testing (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:174:y:2013:i:2:p:66-81

DOI: 10.1016/j.jeconom.2012.09.006

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).