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Cointegration Testing in Single Error-Correction Equations in the Presence of Linear Time Trends


  • Hassler, Uwe


Banerjee, Dolado and Mestre (J. Time Ser. Anal. 19 (1998) 267-283) introduce an error-correction test for the null hypothesis of no cointegration. The present paper supplements their work. They provide critical values for regressions with and without detrending. Here it is shown that the latter are not appropriate if the series display linear trends. This does not mean that detrending is required. Correct percentiles are suggested for the case that series follow linear time trends but tests are based on regressions without detrending. They are readily available from the literature.
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Suggested Citation

  • Hassler, Uwe, 2000. " Cointegration Testing in Single Error-Correction Equations in the Presence of Linear Time Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 621-632, December.
  • Handle: RePEc:bla:obuest:v:62:y:2000:i:5:p:621-32

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    References listed on IDEAS

    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    2. repec:bla:restud:v:57:y:1990:i:1:p:99-125 is not listed on IDEAS
    3. Park, Joon Y. & Phillips, Peter C.B., 1988. "Statistical Inference in Regressions with Integrated Processes: Part 1," Econometric Theory, Cambridge University Press, vol. 4(03), pages 468-497, December.
    4. Hansen, Bruce E., 1992. "Efficient estimation and testing of cointegrating vectors in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 87-121.
    5. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-193, January.
    6. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1148-1171, October.
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    Cited by:

    1. Heejoon Kang, 2004. "Inappropriate Detrending and Spurious Cointegration," Econometric Society 2004 Far Eastern Meetings 624, Econometric Society.
    2. Hassler, Uwe, 2002. "The Effect of Linear Time Trends on Cointegration Testing in Single Equations," Darmstadt Discussion Papers in Economics 111, Darmstadt University of Technology, Department of Law and Economics.
    3. Aurelijus Dabušinskas, 2005. "Money and Prices in Estonia," Bank of Estonia Working Papers 2005-07, Bank of Estonia, revised 10 Nov 2005.
    4. Uwe Hassler & Mehdi Hosseinkouchack, 2016. "Panel Cointegration Testing in the Presence of Linear Time Trends," Econometrics, MDPI, Open Access Journal, vol. 4(4), pages 1-16, November.
    5. Uwe Hassler & Jürgen Wolters, 2006. "Autoregressive distributed lag models and cointegration," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(1), pages 59-74, March.

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