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The Effect of Linear Time Trends on the KPSS Test for Cointegration

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  • Uwe Hassler

Abstract

The so‐called KPSS test for the null hypothesis of cointegration builds on residuals from single equation regressions. Critical values have been provided for regressions with and without detrending. Here it is shown that the latter are not appropriate if the series display linear trends, although this does not mean that detrending is required. In this paper adequate percentiles are suggested for series that follow linear time trends, and tests are based on regressions without detrending. These percentiles are readily available from the literature.

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  • Uwe Hassler, 2001. "The Effect of Linear Time Trends on the KPSS Test for Cointegration," Journal of Time Series Analysis, Wiley Blackwell, vol. 22(3), pages 283-292, May.
    • Handle: RePEc:bla:jtsera:v:22:y:2001:i:3:p:283-292
    DOI: 10.1111/1467-9892.00224
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    Cited by:

    1. Hassler, Uwe, 2002. "The Effect of Linear Time Trends on Cointegration Testing in Single Equations," Darmstadt Discussion Papers in Economics 111, Darmstadt University of Technology, Department of Law and Economics.
    2. Uwe Hassler & Mehdi Hosseinkouchack, 2016. "Panel Cointegration Testing in the Presence of Linear Time Trends," Econometrics, MDPI, vol. 4(4), pages 1-16, November.

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