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Testing cointegration relationship in a semiparametric varying coefficient model

  • Gu, Jingping
  • Liang, Zhongwen

In this paper, we develop two cointegration tests for two varying coefficient cointegration regression models, respectively. Our test statistics are residual based. We derive the asymptotic distributions of test statistics under the null hypothesis of cointegration and show that they are consistent against the alternative hypotheses. We also propose a wild bootstrap procedure companioned with the continuous moving block bootstrap method proposed in Paparoditis and Politis (2001) and Phillips (2010) to rectify severe distortions found in simulations when the sample size is small. We apply the proposed test statistic to examine the purchasing power parity (PPP) hypothesis between the US and Canada. In contrast to the existing results from linear cointegration tests, our varying coefficient cointegration test does not reject that PPP holds between the US and Canada.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 178 (2014)
Issue (Month): P1 ()
Pages: 57-70

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Handle: RePEc:eee:econom:v:178:y:2014:i:p1:p:57-70
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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