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Residuals-based Tests for Cointegration with GLS Detrended Data

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  • Pierre Perron

    (Boston University)

  • Gabriel Rodríguez

    (Pontificia Universidad Católica del Perú)

Abstract

We provide GLS-detrended versions of single-equation static regression or residuals-based tests for testing whether or not non-stationary time series are cointegrated. Our approach is to consider nearly optimal tests for unit roots and apply them in the cointegration context. We derive the local asymptotic power functions of all tests considered for a triangular DGP imposing a directional restriction such that the regressors are pure integrated processes. Our GLS versions of the tests do indeed provide substantial power improvements over their OLS counterparts. Simulations show that the gains in power are important and stable across various configurations.

Suggested Citation

  • Pierre Perron & Gabriel Rodríguez, "undated". "Residuals-based Tests for Cointegration with GLS Detrended Data," Boston University - Department of Economics - Working Papers Series wp2015-017, Boston University - Department of Economics, revised 19 Oct 2015.
    • Handle: RePEc:bos:wpaper:wp2015-017
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cointegration; Residuals-Based Unit Root Tests; ECR Tests; OLS and GLS Detrended Data; Hypothesis Testing;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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