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Error‐correction Mechanism Tests for Cointegration in a Single‐equation Framework
Author(s) -
Banerjee Anindya,
Dolado Juan,
Mestre Ricardo
Publication year - 1998
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/1467-9892.00091
Subject(s) - cointegration , mathematics , autoregressive model , limit (mathematics) , nuisance parameter , statistics , econometrics , ordinary least squares , error correction model , distributed lag , mathematical analysis , estimator
A new test is proposed for cointegration in a single‐equation framework where the regressors are weakly exogenous for the parameters of interest. The test is denoted as an error‐correction mechanism (ECM) test and is based upon the ordinary least squares coefficient of the lagged dependent variable in an autoregressive distributed lag model augmented with leads of the regressors. The limit distributions of the standardized coeffi cient and t ‐ratio versions of the ECM tests are obtained and critical values are provided. These limit distributions do not depend upon nuisance parameters but they depend on the number of regressors. Finally, we compare their power properties with those of other cointegration tests available in the literature and find the circumstances under which the ECM tests have a better performance.