Residuals-based Tests for Cointegration with GLS Detrended Data

Pierre Perron and Gabriel Rodríguez ()
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Gabriel Rodríguez: Pontificia Universidad Católica del Perú
Authors registered in the RePEc Author Service: Gabriel Rodríguez

No wp2015-017, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: We provide GLS-detrended versions of single-equation static regression or residuals-based tests for testing whether or not non-stationary time series are cointegrated. Our approach is to consider nearly optimal tests for unit roots and apply them in the cointegration context. We derive the local asymptotic power functions of all tests considered for a triangular DGP imposing a directional restriction such that the regressors are pure integrated processes. Our GLS versions of the tests do indeed provide substantial power improvements over their OLS counterparts. Simulations show that the gains in power are important and stable across various configurations.

Keywords: Cointegration; Residuals-Based Unit Root Tests; ECR Tests; OLS and GLS Detrended Data; Hypothesis Testing (search for similar items in EconPapers)
JEL-codes: C22 C32 C52 (search for similar items in EconPapers)
Date: 2015-10-19
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Working Paper: Residual Based Tests for Cointegration with GLS Detrended Data (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:bos:wpaper:wp2015-017

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