A residual-based ADF test for stationary cointegration in I(2) settings

Javier Gomez-Biscarri and Javier Hualde
Authors registered in the RePEc Author Service: Javier Gómez Biscarri

Journal of Econometrics, 2015, vol. 184, issue 2, 280-294

Abstract: We propose a residual-based augmented Dickey–Fuller (ADF) test statistic that allows for detection of stationary cointegration within a system that may contain both I(2) and I(1) observables. The test is also consistent under the alternative of multicointegration, where first differences of the I(2) observables enter the cointegrating relationships. We find the null limiting distribution of this statistic and justify why our proposal improves over related approaches. Critical values are computed for a variety of situations. Additionally, building on this ADF test statistic, we propose a procedure to test the null of no stationary cointegration which overcomes the drawback, suffered by any residual-based method, of the lack of power with respect to some relevant alternatives. Finally, a Monte Carlo experiment is carried out and an empirical application is provided as an illustrative example.

Keywords: I(2) systems; Stationary cointegration; Multicointegration; Residual-based tests (search for similar items in EconPapers)
JEL-codes: C12 C22 C32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: A Residual-Based ADF Test for Stationary Cointegration in I (2) Settings (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:184:y:2015:i:2:p:280-294

DOI: 10.1016/j.jeconom.2014.08.009

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