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A Direct Test for Cointegration Between a Pair of Time Series

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  • STEPHEN J. LEYBOURNE
  • PAUL NEWBOLD
  • DIMITRIOS VOUGAS
  • TAE‐HWAN KIM

Abstract

In this paper we introduce a new test of the null hypothesis of no cointegration between a pair of time series. For a very simple generating model, our test compares favourably with the Engle–Granger/Dickey–Fuller test and the Johansen trace test. Indeed, shortcomings of the former motivated the development of our test. The applicability of our test is extended to series generated by low‐order vector autoregressions. Again, we find evidence that this general version of our test is more powerful than the Johansen test. The paper concludes with an empirical example in which the new test finds strong evidence of cointegration, but the Johansen test does not.

Suggested Citation

  • Stephen J. Leybourne & Paul Newbold & Dimitrios Vougas & Tae‐Hwan Kim, 2002. "A Direct Test for Cointegration Between a Pair of Time Series," Journal of Time Series Analysis, Wiley Blackwell, vol. 23(2), pages 173-191, March.
    • Handle: RePEc:bla:jtsera:v:23:y:2002:i:2:p:173-191
    DOI: 10.1111/1467-9892.00261
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