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Residuals‐based tests for cointegration with generalized least‐squares detrended data

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  • Pierre Perron
  • Gabriel Rodríguez

Abstract

We provide generalized least‐squares (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 to apply them in the cointegration context. We derive the local asymptotic power functions of all tests considered for a triangular data‐generating process, 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 ordinary least‐squares counterparts. Simulations show that the gains in power are important and stable across various configurations.

Suggested Citation

  • Pierre Perron & Gabriel Rodríguez, 2016. "Residuals‐based tests for cointegration with generalized least‐squares detrended data," Econometrics Journal, Royal Economic Society, vol. 19(1), pages 84-111, February.
    • Handle: RePEc:wly:emjrnl:v:19:y:2016:i:1:p:84-111
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    File URL: http://hdl.handle.net/10.1111/ectj.12056
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    Cited by:

    1. Karsten Reichold, 2022. "A Residuals-Based Nonparametric Variance Ratio Test for Cointegration," Papers 2211.06288, arXiv.org, revised Dec 2022.
    2. David O. Cushman & Glauco De Vita & Emmanouil Trachanas, 2023. "Is the Fisher effect asymmetric? Cointegration analysis and expectations measurement," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3727-3748, October.
    3. Luis F. Martins & Paulo M. M. Rodrigues, 2022. "Tests for segmented cointegration: an application to US governments budgets," Empirical Economics, Springer, vol. 63(2), pages 567-600, August.
    4. Razvan Pascalau & Junsoo Lee & Saban Nazlioglu & Yan (Olivia) Lu, 2022. "Johansen‐type cointegration tests with a Fourier function," Journal of Time Series Analysis, Wiley Blackwell, vol. 43(5), pages 828-852, September.
    5. Jamel JOUINI, 2018. "Measuring the Macroeconomic Impacts of Fiscal Policy Shocks in the Saudi Economy : A Markov Switching Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 55-70, December.

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