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Testing for cointegration using the Johansen approach: are we using the correct critical values?

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  • Paul Turner

    (Department of Economics, Loughborough University, UK)

Abstract

This paper presents Monte Carlo simulations for the Johansen cointegration test which indicate that the critical values applied in a number of econometrics software packages are inappropriate. This is due to confusion in the specification of the deterministic terms included in the vector error correction model (VECM). The result is a tendency to reject the null of no cointegration too often. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Paul Turner, 2009. "Testing for cointegration using the Johansen approach: are we using the correct critical values?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(5), pages 825-831.
  • Handle: RePEc:jae:japmet:v:24:y:2009:i:5:p:825-831
    DOI: 10.1002/jae.1073
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    References listed on IDEAS

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    1. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
    2. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
    3. Doornik, Jurgen A, 1998. " Approximations to the Asymptotic Distributions of Cointegration Tests," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 573-593, December.
    4. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Giuseppe Cavaliere & Dimitris N. Politis & Anders Rahbek & Giuseppe Cavaliere & Anders Rahbek & A. M. Robert Taylor, 2015. "Recent developments in bootstrap methods for dependent data," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(3), pages 272-289, May.
    2. Solarin, Sakiru Adebola & Shahbaz, Muhammad, 2013. "Trivariate causality between economic growth, urbanisation and electricity consumption in Angola: Cointegration and causality analysis," Energy Policy, Elsevier, vol. 60(C), pages 876-884.

    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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

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