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Testing for cointegration using the Johansen approach: are we using the correct critical values?

preprint
posted on 05.06.2007, 10:56 by Paul Turner
This paper presents Monte Carlo simulations for the Johansen cointegration test which indicate that the critical values applied in a number of econometrics software packages are inappropriate. This is due to a confusion in the specification of the deterministic terms included in the VECM between the cases considered by Osterwald-Lenum (1992) and Pesaran, Shin and Smith (2000). The result is a tendency to reject the null of no cointegration too often. However, a simple adjustment of the critical values is enough to deal with the problem.

History

School

  • Business and Economics

Department

  • Economics

Publication date

2007

Notes

This is a working paper - it is also available at: http://ideas.repec.org/p/lbo/lbowps/2007_12.html.

ISSN

1750-4171

Language

en

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Keywords

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