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Testing for cointegration in misspecified systems: a Monte Carlo study of size distortions
Uppsala University, Humanistisk-samhällsvetenskapliga vetenskapsområdet, Faculty of Social Sciences, Department of Economics.
2003 (English)Report (Other academic)
Abstract [en]

When dealing with time series that are integrated of order one, the concept of cointegration becomes crucial for the specification of a model. Using the best available tests, one can reduce the probability of estimating econometric models that are misspecified. This paper investigates the small sample performance of four well-known cointegration tests when a system has been misspecified by leaving out one relevant explanatory variable from a system with one cointegrating vector. In a Monte Carlo study, the size distortions of the Augmented Engle-Granger (Engle and Granger, 1987), Johansen’s (1988) maximum eigenvalue, Johansen’s (1991) trace and the Boswijk (1989) Wald tests are examined. The Johansen trace test adjusted by the finite sample correction of Reinsel and Ahn (1988) is found to have the most robust performance when lag length in the test equations is chosen according to traditional information criteria.

Place, publisher, year, edition, pages
Uppsala: Nationalekonomiska institutionen , 2003. , p. 32
Series
Working paper, ISSN 0284-2904 ; 2003:21
Keywords [sv]
Ekonometri
Identifiers
URN: urn:nbn:se:uu:diva-4493OAI: oai:DiVA.org:uu-4493DiVA, id: diva2:129275
Available from: 2004-08-10 Created: 2004-08-10

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CiteExportLink to record
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Citation style
  • apa
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  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
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  • text
  • asciidoc
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