IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/809r.html
   My bibliography  Save this paper

Testing for Cointegration Using Principal Component Measures

Author

Abstract

This paper studies cointegrated systems of multiple time series which are individually well described as integrated processes (with or without a drift). Necessary and sufficient conditions for cointegration are given. These conditions form the basis for a new class of statistical procedures designed to test for cointegration. The new procedures rely on principal components methods. They are simple to employ and they involve only the standard normal distribution. Monte Carlo simulations reported in the paper indicate that the new procedures provide simple and apparently rather powerful diagnostics for the detection of cointegration. Some empirical applications to macroeconomic data are conducted.

Suggested Citation

  • Peter C.B. Phillips & Sam Ouliaris, 1986. "Testing for Cointegration Using Principal Component Measures," Cowles Foundation Discussion Papers 809R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1987.
    • Handle: RePEc:cwl:cwldpp:809r
    Note: No page 2; CFP 723.
    as

    Download full text from publisher

    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d08/d0809-r.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-1273, November.
    2. Peter C.B. Phillips, 1986. "Weak Convergence to the Matrix Stochastic Integral BdB," Cowles Foundation Discussion Papers 796, Cowles Foundation for Research in Economics, Yale University.
    3. 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.
    4. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    5. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
    6. Hendry, David F, 1986. "Econometric Modelling with Cointegrated Variables: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 201-212, August.
    7. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    8. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    9. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-436, June.
    10. 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.
    11. Alok Bhargava, 1986. "On the Theory of Testing for Unit Roots in Observed Time Series," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(3), pages 369-384.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220, National Bureau of Economic Research, Inc.
    2. Peter Phillips & Hyungsik Moon, 2000. "Nonstationary panel data analysis: an overview of some recent developments," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 263-286.
    3. Ye Cai & Mototsugu Shintani, 2005. "On the Long-Run Variance Ratio Test for a Unit Root," Vanderbilt University Department of Economics Working Papers 0506, Vanderbilt University Department of Economics.
    4. James Davidson, 2013. "Cointegration and error correction," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 7, pages 165-188, Edward Elgar Publishing.
    5. Fan, Yanqin & Gençay, Ramazan, 2010. "Unit Root Tests With Wavelets," Econometric Theory, Cambridge University Press, vol. 26(5), pages 1305-1331, October.
    6. Gundlach, Erich, 1993. "Die Dienstleistungsnachfrage als Determinante des wirtschaftlichen Strukturwandels," Open Access Publications from Kiel Institute for the World Economy 763, Kiel Institute for the World Economy (IfW Kiel).
    7. Gabriel Rodriguez & Pierre Perron, 2013. "Single-equation tests for Cointegration with GLS Detrended Data," Boston University - Department of Economics - Working Papers Series 2013-016, Boston University - Department of Economics.
    8. Peter C.B. Phillips & Sam Ouliaris & Joon Y. Park, 1988. "Testing for a Unit Root in the Presence of a Maintained Trend," Cowles Foundation Discussion Papers 880, Cowles Foundation for Research in Economics, Yale University.
    9. Neil R. Ericsson, 2021. "Dynamic Econometrics in Action: A Biography of David F. Hendry," International Finance Discussion Papers 1311, Board of Governors of the Federal Reserve System (U.S.).
    10. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    11. Schotman, Peter & van Dijk, Herman K., 1991. "A Bayesian analysis of the unit root in real exchange rates," Journal of Econometrics, Elsevier, vol. 49(1-2), pages 195-238.
    12. Paqué, Karl-Heinz, 1991. "Structural wage rigidity in West Germany 1950-1989: Some new econometric evidence," Kiel Working Papers 489, Kiel Institute for the World Economy (IfW Kiel).
    13. José Roberto López, 1993. "Market efficiency, purchasing power parity and cointegration in Central American black foreing exchange markets," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 8(1), pages 111-153.
    14. Peter C.B. Phillips & Peter Schmidt, 1989. "Testing for a Unit Root in the Presence of Deterministic Trends," Cowles Foundation Discussion Papers 933, Cowles Foundation for Research in Economics, Yale University.
    15. PHILIP E.T. LEWIS & GARRY A. MacDONALD, 1993. "Testing for Equilibrium in the Australian Wage Equation," The Economic Record, The Economic Society of Australia, vol. 69(3), pages 295-304, September.
    16. Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996. "Cointegration tests in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 70(1), pages 187-220, January.
    17. Russell Davidson & Victoria Zinde‐Walsh, 2017. "Advances in specification testing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(5), pages 1595-1631, December.
    18. Breitung, Jorg, 2001. "Rank Tests for Nonlinear Cointegration," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 331-340, July.
    19. Joseph Beaulieu, J. & Miron, Jeffrey A., 1993. "Seasonal unit roots in aggregate U.S. data," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 305-328.
    20. Christopher P. P. Shafuda & Utpal Kumar De, 2020. "Government expenditure on human capital and growth in Namibia: a time series analysis," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-14, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:809r. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.