Testing for cointegration using the Johansen methodology when variables are near-integrated
By: Erik Hjalmarsson and Pär Österholm.
Contributors: Österholm, Pär.; Board of Governors of the Federal Reserve System (U.S.)
Series: International finance discussion papers -- no. 915; International finance discussion papers (Online) -- no. 915.
Publisher: Federal Reserve Board
Published: 2007
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "We investigate the properties of Johansen's (1988, 1991) maximum eigenvalue and trace tests for cointegration under the empirically relevant situation of near-integrated variables.  Using Monte Carlo techniques, we show that in a system with near-integrated variables, the probability of reaching an erroneous conclusion regarding the cointegrating rank of the system is generally substantially higher than the nominal size.  The risk of concluding that completely unrelated series are cointegrated is therefore non-negligible.  The spurious rejection rate can be reduced by performing additional tests of restrictions on the cointegrating vector(s), although it is still substantially larger than the nominal size"--Federal Reserve Board web site.
Notes: Title from PDF file as viewed on 1/24/2008.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.