Testing for Cointegration in the Presence of Moving Average Errors
AbstractThis study explores performance of the Johansen cointegration statistics on data containing negative moving average (NMA) errors. Monte Carlo experiments demonstrate that the asymptotic distributions of the statistics are sensitive to NMA parameters, and that using the standard 5% asymptotic critical values results in severe underestimation of the actual test sizes. We demonstrate that problems associated with NMA errors do not decrease as sample size increases; instead, they become more severe. Further we examine evidence that many U.S. commodity prices are characterized by NMA errors. Pretesting data is recommended before using standard asymptotic critical values for Johansen’s cointegration tests.
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Bibliographic InfoArticle provided by De Gruyter in its journal Journal of Time Series Econometrics.
Volume (Year): 4 (2012)
Issue (Month): 2 (November)
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Web page: http://www.degruyter.com
Other versions of this item:
- Mallory, M. & Lence, Sergio H., 2012. "Testing for Cointegration in the Presence of Moving Average Errors," Staff General Research Papers 36076, Iowa State University, Department of Economics.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
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