The Error Correction Model as a Test for Cointegration

Athina Kanioura and Paul Turner ()

No 2003001, Working Papers from The University of Sheffield, Department of Economics

Abstract: In this paper we generate critical values for a test for cointegration based on the joint significance of the levels terms in an error correction equation. We show that the appropriate critical values are higher than those derived from the standard F-distribution. We compare the power properties of this test with those of the Engle-Granger test and Kremers et al´s t-test based on the t-statistic from an error correction equation. The F-test has higher power than the Engle-Granger test but lower power than the t-form of the error correction test. However, the F-form of the test has the advantage that its distribution is independent of the parameters of the problem being considered. Finally, we consider a test for cointegration between UK and US interest rates. We show that the F-test rejects the null of no cointegration between these variables although the Engle-Granger test fails to do so.

Keywords: Cointegration; error correction. (search for similar items in EconPapers)
JEL-codes: C12 C15 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2003-03, Revised 2003-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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