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Testing of fractional cointegration in macroeconomic time series

  • Gil-Alaña, Luis A.
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    We propose in this article a two-step testing procedure of fractional cointegration in macroeconomic time series. It is based on Robinson's (1994) univariate tests and is similar in spirit to the one proposed by Engle and Granger (1987), testing initially the order of integration of the individual series and then, testing the degree of integration of the residuals from the cointegrating relationship. Finite-sample critical values of the new tests are computed and Monte Carlo experiments are conducted to examine the size and the power properties of the tests in finite samples. An empirical application, using the same datasets as in Engle and Granger (1987) and Campbell and Shiller (1987) is also carried out at the end of the article.

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    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,105.

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    Date of creation: 2000
    Date of revision:
    Handle: RePEc:zbw:sfb373:2000105
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    1. Campbell, John Y. & Mankiw, N. Gregory, 1990. "Permanent Income, Current Income, and Consumption," Scholarly Articles 3353762, Harvard University Department of Economics.
    2. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
    3. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-47, October.
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    5. Ermisch, John & Westaway, Peter, 1994. "The Dynamics of Aggregate Consumption in an Open Economy Life Cycle Model," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(2), pages 113-27, May.
    6. 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.
    7. John Y. Campbell & Robert J. Shiller, 1986. "Cointegration and Tests of Present Value Models," NBER Working Papers 1885, National Bureau of Economic Research, Inc.
    8. Luis Alberiko Gil-Alana, 2002. "Multivariate Tests of Fractionally Integrated Hypotheses," Faculty Working Papers 09/02, School of Economics and Business Administration, University of Navarra.
    9. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
    10. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    11. Gil-Alana, Luis A., 1999. "Testing fractional integration with monthly data," Economic Modelling, Elsevier, vol. 16(4), pages 613-629, December.
    12. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
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    14. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
    15. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 103-12, January.
    16. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
    17. D Marinucci & Peter M. Robinson, 1998. "Semiparametric frequency domain analysis of fractional cointegration," LSE Research Online Documents on Economics 2258, London School of Economics and Political Science, LSE Library.
    18. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    19. Qin, Duo, 1991. "Aggregate consumption and income in China: An econometric study," Journal of Comparative Economics, Elsevier, vol. 15(1), pages 132-141, March.
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