Stationarity and cointegration tests: Comparison of Engle - Granger and Johansen methodologies

Faik Bilgili

MPRA Paper from University Library of Munich, Germany

Abstract: Engle-Granger methodology follows two-step estimations. The first step generates the residuals and the second step employs generated residuals to estimate a regression of first-differenced residuals on lagged residuals. Hence, any possible error from the first step will be carried into second step. The Johansen maximum likelihood methodology circumvents Engle-Granger methodology by estimating and testing for the presence of multiple cointegrating vectors through largest canonical correlations. The number of non-zero eigenvalues of Ψ of eq. 26 in the text will specify the number of cointegrating vectors. Some Monte Carlo evidence explores that Johansen procedure performs better than both single equation methods and alternative multivariate methods. In fact, evidence of this paper reveals, as well, that, as Engle-Granger yields some inconclusive outcome, the Johansen tests reach at least one cointegration relationship among variables for Canada, India, Italy, Japan, Turkey and the USA. Then, one may claim that Johansen methodology dominates the Engle- Granger methodology in cointegration analyses.

Keywords: Stationarity; Cointegration; Engle-Granger methodology; Johansen methodology; Consumption (search for similar items in EconPapers)
JEL-codes: C12 C18 C2 C22 C29 C32 C52 E21 (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Journal of Faculty of Economics and Administrative Sciences, Erciyes University 13 (1998): pp. 131-141

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/75967/1/MPRA_paper_75967.pdf original version (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:pra:mprapa:75967

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().