Testing for Cointegration in Misspecified Systems –A Monte Carlo Study of Size Distortions

Pär Österholm

No 2003:21, Working Paper Series from Uppsala University, Department of Economics

Abstract: When dealing with time series that are integrated of order one, the concept of cointegration becomes crucial for the specification of a model. Using the best available tests, one can reduce the probability of estimating econometric models that are misspecified. This paper investigates the small sample performance of four well-known cointegration tests when a system has been misspecified by leaving out one relevant explanatory variable from a system with one cointegrating vector. In a Monte Carlo study, the size distortions of the Augmented Engle-Granger (Engle and Granger, 1987), Johansen’s (1988) maximum eigenvalue, Johansen’s (1991) trace and the Boswijk (1989) Wald tests are examined. The Johansen trace test adjusted by the finite sample correction of Reinsel and Ahn (1988) is found to have the most robust performance when lag length in the test equations is chosen according to traditional information criteria.

Keywords: Cointegration; Tests; Monte Carlo (search for similar items in EconPapers)
JEL-codes: C12 C15 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2003-08-15
New Economics Papers: this item is included in nep-cmp, nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Applied Economics Letters, 2004, pages 919-924.

Downloads: (external link)
http://uu.diva-portal.org/smash/get/diva2:129275/FULLTEXT01.pdf (application/pdf)

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: https://EconPapers.repec.org/RePEc:hhs:uunewp:2003_021

Access Statistics for this paper

More papers in Working Paper Series from Uppsala University, Department of Economics Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Ulrika Öjdeby ().