Error‐correction Mechanism Tests for Cointegration in a Single‐equation Framework

A new test is proposed for cointegration in a single‐equation framework where the regressors are weakly exogenous for the parameters of interest. The test is denoted as an error‐correction mechanism (ECM) test and is based upon the ordinary least squares coefficient of the lagged dependent variable in an autoregressive distributed lag model augmented with leads of the regressors. The limit distributions of the standardized coeffi cient and t‐ratio versions of the ECM tests are obtained and critical values are provided. These limit distributions do not depend upon nuisance parameters but they depend on the number of regressors. Finally, we compare their power properties with those of other cointegration tests available in the literature and find the circumstances under which the ECM tests have a better performance.

[1]  Bruce E. Hansen,et al.  Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power , 1995, Econometric Theory.

[2]  D. Hendry.  On the interactions of unit roots and exogeneity , 1995 .

[3]  Mark W. Watson,et al.  A SIMPLE ESTIMATOR OF COINTEGRATING VECTORS IN HIGHER ORDER INTEGRATED SYSTEMS , 1993 .

[4]  David F. Hendry,et al.  Co-Integration, Error Correction, and the Econometric Analysis of Non-Stationary Data , 1993, Advanced texts in econometrics.

[5]  J. Kiviet,et al.  Exact Similar Tests for Unit Roots and Cointegration , 1992 .

[6]  Michael Osterwald-Lenum.  A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics , 1992 .

[7]  Juan J. Dolado,et al.  The Power of Cointegration Tests , 1992 .

[8]  David F. Hendry,et al.  Modeling the demand for narrow money in the United Kingdom and the United States , 1991 .

[9]  Peter C. B. Phillips,et al.  Estimating Long Run Economic Equilibria , 1991 .

[10]  Pentti Saikkonen,et al.  Asymptotically Efficient Estimation of Cointegration Regressions , 1991, Econometric Theory.

[11]  H. P. Boswijk.  Testing for cointegration in structural models , 1991 .

[12]  P. Phillips,et al.  Asymptotic Properties of Residual Based Tests for Cointegration , 1990 .

[13]  Peter C. B. Phillips,et al.  Statistical Inference in Instrumental Variables Regression with I(1) Processes , 1990 .

[14]  B. Hansen.  A Powerful, Simple Test For Cointegration Using Cochrane- Orcutt , 1990 .

[15]  G. Schwert,et al.  Tests for Unit Roots: a Monte Carlo Investigation , 1988 .

[16]  P. Phillips.  Regression Theory for Near-Integrated Time Series , 1988 .

[17]  C. Granger,et al.  Co-integration and error correction: representation, estimation and testing , 1987 .

[18]  P. Phillips,et al.  Multiple Time Series Regression with Integrated Processes , 1986 .

[19]  D. Dickey,et al.  Testing for unit roots in autoregressive-moving average models of unknown order , 1984 .

[20]  David F. Hendry,et al.  On the Formulation of Empirical-models in Dynamic Econometrics , 1982 .

[21]  Chris Chatfield,et al.  Introduction to Statistical Time Series. , 1976 .

[22]  J. Kadane.  Comparison of k-Class Estimators When the Disturbances Are Small , 1971 .

[23]  J. Kadane.  Testing Overidentifying Restrictions When the Disturbances Are Small , 1970 .