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Cointegration Testing in Single Error‐Correction Equations in the Presence of Linear Time Trends

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  • Uwe Hassler

Abstract

Banerjee, Dolado and Mestre (J. Time Ser. Anal. 19 (1998) 267−283)introduce an error‐correction test for the null hypothesis of no cointegration. The present paper supplements their work. They provide critical values forregressions with and without detrending. Here it is shown that the latter arenot appropriate if the series display linear trends. This does not mean thatdetrending is required. Correct percentiles are suggested for the case thatseries follow linear time trends but tests are based on regressions withoutdetrending. They are readily available from the literature.

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  • Uwe Hassler, 2000. "Cointegration Testing in Single Error‐Correction Equations in the Presence of Linear Time Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 621-632, December.
    • Handle: RePEc:bla:obuest:v:62:y:2000:i:5:p:621-632
    DOI: 10.1111/1468-0084.00193
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    1. Hansen, Bruce E., 1992. "Efficient estimation and testing of cointegrating vectors in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 87-121.
    2. Banerjee, Anindya, et al, 1986. "Exploring Equilibrium Relationships in Econometrics through Static Models: Some Monte Carlo Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 253-277, August.
    3. Harbo, Ingrid, et al, 1998. "Asymptotic Inference on Cointegrating Rank in Partial Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 388-399, October.
    4. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(5), pages 1148-1171, October.
    5. Park, Joon Y. & Phillips, Peter C.B., 1988. "Statistical Inference in Regressions with Integrated Processes: Part 1," Econometric Theory, Cambridge University Press, vol. 4(3), pages 468-497, December.
    6. Uwe Hassler, 1999. "(When) Should cointegrating regressions be detrended? The case of a German money demand function," Empirical Economics, Springer, vol. 24(1), pages 155-172.
    7. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    8. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-193, January.
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    1. Hassler, Uwe, 2002. "The Effects of linear time trends on conintegration testing in single equations," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 18294, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Uwe Hassler & Jürgen Wolters, 2006. "Autoregressive distributed lag models and cointegration," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(1), pages 59-74, March.
    3. Uwe Hassler & Mehdi Hosseinkouchack, 2016. "Panel Cointegration Testing in the Presence of Linear Time Trends," Econometrics, MDPI, vol. 4(4), pages 1-16, November.
    4. Heejoon Kang, 2004. "Inappropriate Detrending and Spurious Cointegration," Econometric Society 2004 Far Eastern Meetings 624, Econometric Society.
    5. Aurelijus Dabušinskas, 2005. "Money and Prices in Estonia," Bank of Estonia Working Papers 2005-07, Bank of Estonia, revised 10 Nov 2005.

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