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ECM tests for cointegration in a single equation framework

Ricardo Mestre (), Anindya Banerjee () and Juan Dolado

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: This paper proposes a new test for cointegration In a single-equation framework where the regressors are weakly exogenous for the parameters of interest. The test is denoted as ECM test and is based upon the OLS coefficient of the lagged dependent variable in an autoregressive-distributed lag model augmented with leads of the regressors. The limit distributions of the standardised coefficient and t-ratio versions of the ECM tests are obtained and critical values are provided. These limit distributions do not depend upon nuisance parameters but they depend on the number of regressors. Finally, we compare their power properties with those of other cointegration tests available in the literature and find under which circumstances the ECM tests have a better performance.

Keywords: Cointegration; tests; Power; properties; Common-factor; restrictions (search for similar items in EconPapers)
Date: 1997-03
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