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TESTING THE NULL OF NO COINTEGRATION WHEN COVARIATES ARE KNOWN TO HAVE A UNIT ROOT

Published online by Cambridge University Press:  01 December 2009

Graham Elliott  and
Elena Pesavento
Graham Elliott
Affiliation:
University of California, San Diego
Elena Pesavento*
Affiliation:
Emory University
*
*Address correspondence to Elena Pesavento, Emory University, 1602 Fishburne Dr., Atlanta, GA 30322; e-mail: epesave@emory.edu.
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Abstract

A number of tests have been suggested for the test of the null of no cointegration. Under this null, correlations are spurious in the sense of Granger and Newbold (1974) and Phillips (1986). We examine a set of models local to the null of no cointegration and derive tests with optimality properties in order to examine the efficiency of available tests. We find that, for a sufficiently tight weighting over potential cointegrating vectors, commonly employed full system tests have power that can, in some situations, be quite far from the power bounds for the models examined.

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Type
ARTICLES
Information
Econometric Theory , Volume 25 , Issue 6: Newbold Conference Special Issue , December 2009 , pp. 1829 - 1850
Copyright
Copyright © Cambridge University Press 2009

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