Causality and Cointegration between Consumption and GDP in 25 OECD countries: limitations of cointegration approach
A critical review of cointegration is presented in this paper, emphasizing some limitations of this approach to testing causal relations in Econometrics. Very often the usual way of analysing cointegration leads researchers to declare many important causal relations as spurious when they are obviously not. On the other hand that approach does not always avoid the peril of accepting as causal relations those that really are spurious. An application of the tests to the relation between Private Consumption and Gross Domestic Product in 25 OECD countries, during the period 1960-97, is performed and the results confirm the above mentioned limitations of cointegration tests. The most extreme case is that of the UK where, in one of the applications, the usual tests lead to rejection of cointegration between british Private Consumption and british GDP and acceptance of cointegration of british Private Consumption with GDP of all the other countries. Regarding cointegration we should take into account two important points: one is that many causal relations with autocorrelation coefficient of residuals near 0.9 show a result of uncertainty, or a result of near cointegration, and should not be counted as rejections. A second, equally important point, is that sometimes the problem of no cointegration among several variables, is due to small problems in the specification of the model, easily avoided with some changes in the form of the dynamic relation, and not to the existence of non-causal relations.
Volume (Year): 1 (2001)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.usc.es/economet/eaa.htm|
|Order Information:|| Web: http://www.usc.es/economet/info.htm Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Klein, Lawrence R., 1981. "Autobiography," Nobel Prize in Economics documents 1980-2, Nobel Prize Committee.
- Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
When requesting a correction, please mention this item's handle: RePEc:eaa:aeinde:v:1:y:2001:i:1_2. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan)
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.