Economics at your fingertips  

A Note on Johansen's Cointegration Procedure When Trends Are Present

Pierre Perron () and John Campbell ()

Empirical Economics, 1993, vol. 18, issue 4, 777-89

Abstract: This note discusses some issues that arise when Johansen's (1991) framework is used to analyze cointegrating relationships among variables with deterministic linear time trends. We distinguish "stochastic" and "deterministic" cointegration, arguing that stochastic cointegration is sufficient for the existence of an error correction representation and that it is often the hypothesis of interest in empirical applications. We show that Johansen's (1991) method, which includes only a constant term in the estimated regression system, does not allow for stochastic cointegration. We propose to modify Johansen's method by including a vector of deterministic linear trends in the estimated model. We present tabulated critical values of the maximal eigen value and trace statistics appropriate for this case. We discuss the circumstances under which our modification may be useful.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (24) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla ().

Page updated 2019-07-04
Handle: RePEc:spr:empeco:v:18:y:1993:i:4:p:777-89