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A Sieve Bootstrap Test for Cointegration in a Conditional Error Correction Model

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Author Info
Palm, Franz C.
Smeekes, Stephan
Urbain, Jean-Pierre (METEOR)

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Abstract

In this paper we propose a bootstrap version of the Wald test for cointegration in a single-equation conditional error correction model. The multivariate sieve bootstrap is used to deal with dependence in the series. We show that the introduced bootstrap test is asymptotically valid.We also analyze the small sample properties of our test by simulation and compare it with the asymptotic test and several alternative bootstrap tests. The bootstrap test offers significant improvements in terms of size properties over the asymptotic test, while having similar power properties. It also performs at least as well as the alternative bootstrap tests considered in terms of size and power.The sensitivity of the bootstrap test to the allowance for deterministic components is also investigated. Simulation results show that the tests with sufficient deterministic componentsincluded are insensitive to the true value of the trends in the model, and retain correct size.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 054.

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Date of creation: 2007
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Handle: RePEc:dgr:umamet:2007054

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Keywords: econometrics;

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  1. Mantalos, Panagiotis & Shukur, Ghazi, 1998. "Size and Power of the Error Correction Model Cointegration Test. A Bootstrap Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 249-55, May.
  2. Peter Boswijk, H., 1994. "Testing for an unstable root in conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 37-60, July. [Downloadable!] (restricted)
  3. Pesavento, Elena, 2004. "Analytical evaluation of the power of tests for the absence of cointegration," Journal of Econometrics, Elsevier, vol. 122(2), pages 349-384, October. [Downloadable!] (restricted)
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  4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  5. Franz C. Palm & Stephan Smeekes & Jean-Pierre Urbain, 2008. "Bootstrap Unit-Root Tests: Comparison and Extensions," Journal of Time Series Analysis, Blackwell Publishing, vol. 29(2), pages 371-401, 03. [Downloadable!] (restricted)
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  6. Carsten Trenkler, 2006. "Bootstrapping Systems Cointegration Tests with a Prior Adjustment for Deterministic Terms," SFB 649 Discussion Papers SFB649DP2006-012, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  7. Zivot, Eric, 2000. "The Power Of Single Equation Tests For Cointegration When The Cointegrating Vector Is Prespecified," Econometric Theory, Cambridge University Press, vol. 16(03), pages 407-439, June. [Downloadable!]
  8. Yoosoon Chang & Joon Park, 2002. "On The Asymptotics Of Adf Tests For Unit Roots," Econometric Reviews, Taylor and Francis Journals, vol. 21(4), pages 431-447. [Downloadable!] (restricted)
  9. Park, Joon Y., 2002. "An Invariance Principle For Sieve Bootstrap In Time Series," Econometric Theory, Cambridge University Press, vol. 18(02), pages 469-490, April. [Downloadable!]
  10. Seo, Myunghwan, 2006. "Bootstrap testing for the null of no cointegration in a threshold vector error correction model," Journal of Econometrics, Elsevier, vol. 134(1), pages 129-150, September. [Downloadable!] (restricted)
  11. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
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  12. Eric Zivot, 1996. "The Power of Single Equation Tests for Cointegration when the Cointegrating Vector is Prespecified," Econometrics 9612001, EconWPA. [Downloadable!]
  13. Chang, Yoosoon & Park, Joon Y. & Song, Kevin, 2006. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 133(2), pages 703-739, August. [Downloadable!] (restricted)
  14. Yoosoon Chang & Joon Y. Park, 2003. "A Sieve Bootstrap For The Test Of A Unit Root," Journal of Time Series Analysis, Blackwell Publishing, vol. 24(4), pages 379-400, 07. [Downloadable!] (restricted)
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  1. Gengenbach, Christian & Urbain, Jean-Pierre & Westerlund, Joakim, 2008. "Panel Error Correction Testing with Global Stochastic Trends," Research Memoranda 051, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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