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Testing cointegration relationship in a semiparametric varying coefficient model

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  • Gu, Jingping
  • Liang, Zhongwen

Abstract

In this paper, we develop two cointegration tests for two varying coefficient cointegration regression models, respectively. Our test statistics are residual based. We derive the asymptotic distributions of test statistics under the null hypothesis of cointegration and show that they are consistent against the alternative hypotheses. We also propose a wild bootstrap procedure companioned with the continuous moving block bootstrap method proposed in Paparoditis and Politis (2001) and Phillips (2010) to rectify severe distortions found in simulations when the sample size is small. We apply the proposed test statistic to examine the purchasing power parity (PPP) hypothesis between the US and Canada. In contrast to the existing results from linear cointegration tests, our varying coefficient cointegration test does not reject that PPP holds between the US and Canada.

Suggested Citation

  • Gu, Jingping & Liang, Zhongwen, 2014. "Testing cointegration relationship in a semiparametric varying coefficient model," Journal of Econometrics, Elsevier, vol. 178(P1), pages 57-70.
  • Handle: RePEc:eee:econom:v:178:y:2014:i:p1:p:57-70
    DOI: 10.1016/j.jeconom.2013.08.006
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    Cited by:

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    5. Li, Li & Tu, Yundong, 2022. "The varying spillover of U.S. systemic risk: A functional-coefficient cointegration approach," Economics Letters, Elsevier, vol. 212(C).

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    More about this item

    Keywords

    Varying coefficient; Cointegration tests; PPP hypothesis; Bootstrapping; Semiparametric;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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