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Size properties of cointegration tests in misspecified systems

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  • Par Osterholm

Abstract

The small sample size properties of three frequently used cointegration tests when a system has been misspecified are investigated. Specifically, the misspecification consists of one relevant variable being omitted from a system with one cointegrating vector. A Monte Carlo study shows that the Johansen (1991) trace test, adjusted by a simple finite sample correction, has the most robust behaviour when lag length in the test equations is chosen according to traditional information criteria.

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  • Par Osterholm, 2004. "Size properties of cointegration tests in misspecified systems," Applied Economics Letters, Taylor & Francis Journals, vol. 11(15), pages 919-924.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:15:p:919-924
    DOI: 10.1080/1350485042000282286
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    Cited by:

    1. Niko Gobbin & Glenn Rayp, 2008. "Different ways of looking at old issues: a time-series approach to inequality and growth," Applied Economics, Taylor & Francis Journals, vol. 40(7), pages 885-895.

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