A Note on Johansen's Cointegration Procedure When Trends Are Present
AbstractThis note discusses some issues that arise when Johansen's (1991) framework is used to analyze cointegrating relationships among variables with deterministic linear time trends. We distinguish "stochastic" and "deterministic" cointegration, arguing that stochastic cointegration is sufficient for the existence of an error correction representation and that it is often the hypothesis of interest in empirical applications. We show that Johansen's (1991) method, which includes only a constant term in the estimated regression system, does not allow for stochastic cointegration. We propose to modify Johansen's method by including a vector of deterministic linear trends in the estimated model. We present tabulated critical values of the maximal eigen value and trace statistics appropriate for this case. We discuss the circumstances under which our modification may be useful.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Springer in its journal Empirical Economics.
Volume (Year): 18 (1993)
Issue (Month): 4 ()
Contact details of provider:
Postal: Stumpergasse 56, A-1060 Vienna
Phone: ++43 - (0)1 - 599 91 - 0
Fax: ++43 - (0)1 - 599 91 - 555
Web page: http://link.springer.de/link/service/journals/00181/index.htm
More information through EDIRC
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Lutkepohl, Helmut & Saikkonen, Pentti, 1999. "A lag augmentation test for the cointegrating rank of a VAR process," Economics Letters, Elsevier, vol. 63(1), pages 23-27, April.
- Chau-Jung Kuo & Su-Lien Lu, 2005. "Taiwan's financial holding companies: an empirical investigation based on Markov regime-switching model," Applied Economics, Taylor & Francis Journals, vol. 37(5), pages 593-605.
- Trenkler, Carsten, 2002.
"The effects of ignoring level shifts on systems cointegration tests,"
SFB 373 Discussion Papers
2002,68, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Carsten Trenkler*, 2005. "The Effects of Ignoring Level Shifts on Systems Cointegration Tests," AStA Advances in Statistical Analysis, Springer, vol. 89(3), pages 281-301, August.
- Deschamps, Philippe J., 1998.
"Full maximum likelihood estimation of dynamic demand models,"
Journal of Econometrics,
Elsevier, vol. 82(2), pages 335-359, February.
- Deschamps, P. J., . "Full maximum likelihood estimation of dynamic demand models," CORE Discussion Papers RP -1291, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- H. Lütkepohl & P. Saikkonen, 1997.
"Testing for the Cointegrating Rank of a VAR Process with a Time Trend,"
SFB 373 Discussion Papers
1997,79, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Lutkepohl, Helmut & Saikkonen, Pentti, 2000. "Testing for the cointegrating rank of a VAR process with a time trend," Journal of Econometrics, Elsevier, vol. 95(1), pages 177-198, March.
- Fabrizio Iacone & Peter M Robinson, 2004.
"Cointegration in Fractional Systems with Deterministic Trends,"
STICERD - Econometrics Paper Series
/2004/476, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Robinson, P.M. & Iacone, F., 2005. "Cointegration in fractional systems with deterministic trends," Journal of Econometrics, Elsevier, vol. 129(1-2), pages 263-298.
- Ahlgren, Niklas & Juselius, Mikael, 2009.
"Tests for Cointegration Rank and the Initial Condition,"
539, Hanken School of Economics.
- Niklas Ahlgren & Mikael Juselius, 2012. "Tests for cointegration rank and the initial condition," Empirical Economics, Springer, vol. 42(3), pages 667-691, June.
- Qu, Zhongjun & Perron, Pierre, 2007.
"A Modified Information Criterion For Cointegration Tests Based On A Var Approximation,"
Cambridge University Press, vol. 23(04), pages 638-685, August.
- Zhongjun Qu & Pierre Perron, 2006. "A Modified Information Criterion for Cointegration Tests based on a VAR Approximation," Boston University - Department of Economics - Working Papers Series WP2006-011, Boston University - Department of Economics.
- Bierens, H.J., 1995.
"Nonparametric cointegration analysis,"
1995-123, Tilburg University, Center for Economic Research.
- Guillaume Chevillon, 2013.
"Robust Cointegration Testing in the Presence of Weak Trends, with an Application to the Human Origin of Global Warming,"
- Chevillon, Guillaume, 2013. "Robust Cointegration Testing in the Presence of Weak Trends, with an Application to the Human Origin of Global Warming," ESSEC Working Papers WP1320, ESSEC Research Center, ESSEC Business School.
- Fukuda, Kosei, 2007. "Joint detection of unit roots and cointegration: Data-based simulation," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 75(1), pages 28-36.
- Byeongseon, Seo, 1998. "Statistical inference on cointegration rank in error correction models with stationary covariates," Journal of Econometrics, Elsevier, vol. 85(2), pages 339-385, August.
- Lee, Hahn S. & Siklos, Pierre L., 1995. "A note on the critical values for the maximum likelihood (seasonal) cointegration tests," Economics Letters, Elsevier, vol. 49(2), pages 137-145, August.
- Maurice Kugler & Reza Ofoghi, 2005. "Does Insurance Promote Economic Growth? Evidence from the UK," Money Macro and Finance (MMF) Research Group Conference 2005 8, Money Macro and Finance Research Group.
- Celine Gauthier & David Tessier, 2002. "Supply Shocks and Real Exchange Rate Dynamics: Canadian Evidence," Working Papers 02-31, Bank of Canada.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.