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

✍ Scribed by Paul Turner

• Publisher: John Wiley and Sons
• Year: 2009
• Tongue: English
• Weight: 74 KB
• Volume: 24
• Category: Article
• ISSN: 0883-7252
• DOI: 10.1002/jae.1073

✦ Synopsis

Abstract

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 confusion in the specification of the deterministic terms included in the vector error correction model (VECM). The result is a tendency to reject the null of no cointegration too often. Copyright © 2009 John Wiley & Sons, Ltd.