A Gaussian Test for Cointegration

Tilak Abeysinghe and Gulasekaran Rajaguru ()

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: We use a mixed-frequency regression technique to develop a test for cointegration under the null of stationarity of the deviations from a long-run relationship. What is noteworthy about this MA unit root test, based on a variance-difference, is that, instead of having to deal with non-standard distributions, it takes the testing back to the normal distribution and offers a way to increase power without having to increase the sample size substantially. Monte Carlo simulations show minimal size distortions even when the AR root is close to unity and that the test offers substantial gains in power against near-null alternatives in moderate size samples. An empirical exercise illustrates the relative usefulness of the test further.

Keywords: Null of stationarity; MA unit root; mixed-frequency regression; variance difference; normal distribution; power. (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2010-01
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Related works:
Working Paper: A Gaussian Test for Cointegration (2009)
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