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Confidence Sets for Cointegrating Coefficients Based on Stationarity Tests

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  • Wright, Jonathan H

Abstract

Standard methods for inference in cointegrating systems require all the variables to have exact unit roots and are not at all robust even to slight violations of this condition. In this article, I consider an alternative approach to inference in a cointegrating system. This involves testing the hypothesis that a cointegrating vector takes on a specified value by testing for the stationarity of the associated residual. Confidence sets for the cointegrating vector can be constructed by exploiting the equivalence between tests and confidence sets. This method has the advantage that it remains valid even if the regressors have roots that are not exactly equal to unity.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 18 (2000)
Issue (Month): 2 (April)
Pages: 211-22

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Handle: RePEc:bes:jnlbes:v:18:y:2000:i:2:p:211-22

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Cited by:
  1. Ulrich Müller & Mark W. Watson, 2009. "Low-Frequency Robust Cointegration Testing," NBER Working Papers 15292, National Bureau of Economic Research, Inc.
  2. Maynard, Alex & Shimotsu, Katsumi, 2009. "Covariance-Based Orthogonality Tests For Regressors With Unknown Persistence," Econometric Theory, Cambridge University Press, vol. 25(01), pages 63-116, February.
  3. Michael Jansson & Marcelo J. Moreira, 2006. "Optimal Inference in Regression Models with Nearly Integrated Regressors," Econometrica, Econometric Society, vol. 74(3), pages 681-714, 05.
  4. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, vol. 39(1), pages 51-76, August.
  5. Erik Hjalmarsson & Par Osterholm, 2007. "A residual-based cointegration test for near unit root variables," International Finance Discussion Papers 907, Board of Governors of the Federal Reserve System (U.S.).
  6. Jonathan H. Wright, 1999. "A simple approach to robust inference in a cointegrating system," International Finance Discussion Papers 654, Board of Governors of the Federal Reserve System (U.S.).
  7. Müller, Ulrich K. & Watson, Mark W., 2013. "Low-frequency robust cointegration testing," Journal of Econometrics, Elsevier, vol. 174(2), pages 66-81.

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