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Residuals-based Tests for Cointegration with GLS Detrended Data

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  • Pierre Perron

    () (Boston University)

  • Gabriel Rodríguez

    () (Pontificia Universidad Católica del Perú)

Abstract

We provide GLS-detrended versions of single-equation static regression or residuals-based tests for testing whether or not non-stationary time series are cointegrated. Our approach is to consider nearly optimal tests for unit roots and apply them in the cointegration context. We derive the local asymptotic power functions of all tests considered for a triangular DGP imposing a directional restriction such that the regressors are pure integrated processes. Our GLS versions of the tests do indeed provide substantial power improvements over their OLS counterparts. Simulations show that the gains in power are important and stable across various configurations.

Suggested Citation

  • Pierre Perron & Gabriel Rodríguez, "undated". "Residuals-based Tests for Cointegration with GLS Detrended Data," Boston University - Department of Economics - Working Papers Series wp2015-017, Boston University - Department of Economics, revised 19 Oct 2015.
  • Handle: RePEc:bos:wpaper:wp2015-017
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    References listed on IDEAS

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    Cited by:

    1. Steven Cook, 2009. "A re-examination of the stationarity of inflation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 1047-1053.
    2. Hassan Ghassan & Prashanta Banerjee, 2015. "A threshold cointegration analysis of asymmetric adjustment of OPEC and non-OPEC monthly crude oil prices," Empirical Economics, Springer, vol. 49(1), pages 305-323, August.
    3. Ghassan, Hassan Belkacem & AlHajhoj, Hassan Rafdan, 2016. "Long run dynamic volatilities between OPEC and non-OPEC crude oil prices," Applied Energy, Elsevier, vol. 169(C), pages 384-394.
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    8. Hassan B. GHASSAN & Hassan R. ALHAJHOJ, 2012. "Bound Cointegration Test on Private Investment’s Equation: Evidence from Saudi Economy," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 12(1).
    9. Boswijk, H. Peter & Jansson, Michael & Nielsen, Morten Ørregaard, 2015. "Improved likelihood ratio tests for cointegration rank in the VAR model," Journal of Econometrics, Elsevier, vol. 184(1), pages 97-110.
    10. Ghassan, Hassan B. & AlDehailan, Salman, 2009. "اختبار التكامل المشترك غير الخطي بين الاستثمار الحكومي والاستثمار الخاص في الاقتصاد السعودي
      [Test of Non Linear Cointegration between Government Investment and Private Investment in Saudi Arabia Ec
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    11. Kwapil, Claudia & Scharler, Johann, 2010. "Interest rate pass-through, monetary policy rules and macroeconomic stability," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 236-251, March.
    12. Douglas Hodgson & Aylin Seçkin, 2012. "Dynamic price dependence of Canadian and international art markets: an empirical analysis," Empirical Economics, Springer, vol. 43(2), pages 867-890, October.
    13. Ghassan, Hassan B., 2011. "Public and Private Investment in Saudi Economy: Evidence from Weak Exogeneity and Bound Cointegration Tests," MPRA Paper 56537, University Library of Munich, Germany.
    14. Christopher J. Neely & David E. Rapach, 2008. "Real interest rate persistence: evidence and implications," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 609-642.
    15. Shyh-Wei Chen, 2007. "Evidence of the Long-Run Neutrality of Money: The Case of South Korea and Taiwan," Economics Bulletin, AccessEcon, vol. 3(64), pages 1-18.
    16. Sonali Das & Rangan Gupta & Patrick Kanda & Monique Reid & Christian Tipoy & Mulatu Zerihun, 2014. "Real interest rate persistence in South Africa: evidence and implications," Economic Change and Restructuring, Springer, vol. 47(1), pages 41-62, February.
    17. Ghassan, Hassan B., 2009. "Non Linear Adjustment in the MLR Condition: Evidence from Threshold Cointegration," MPRA Paper 54393, University Library of Munich, Germany.
    18. Daiki Maki, 2005. "Asymmetric adjustment of the equilibrium relationship between the nominal interest rate and inflation rate," Economics Bulletin, AccessEcon, vol. 3(9), pages 1-8.
    19. Juan Jiménez-Martin & M. Robles-Fernandez, 2010. "PPP: Delusion or Reality? Evidence from a Nonlinear Analysis," Open Economies Review, Springer, vol. 21(5), pages 679-704, November.
    20. Rapach, David E. & Weber, Christian E., 2004. "Are real interest rates really nonstationary? New evidence from tests with good size and power," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 409-430, September.
    21. Ghassan, Hassan B., 2007. "La condition de Marshall-Lerner-Robinson est-elle stable ? Approche par le test GLS cointégration à niveau et puissance améliorés
      [Does the Marshall-Lerner-Robinson condition verify the stability?
      ," MPRA Paper 56354, University Library of Munich, Germany, revised 15 Jan 2008.
    22. repec:ebl:ecbull:v:3:y:2007:i:64:p:1-18 is not listed on IDEAS
    23. Cook, Steven, 2007. "On the relationship between mergers and economic activity: Evidence from an optimised hybrid method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(2), pages 628-634.
    24. Marco Morales, 2014. "Cointegration testing under structural change: reducing size distortions and improving power of residual based tests," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 23(2), pages 265-282, June.

    More about this item

    Keywords

    Cointegration; Residuals-Based Unit Root Tests; ECR Tests; OLS and GLS Detrended Data; Hypothesis Testing;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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