A residual-based ADF test for stationary cointegration in I (2) settings

Javier Gómez Biscarri and Javier Hualde

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We propose a residual-based augmented Dickey-Fuller (ADF) test statistic that allows for detection of stationary cointegration within a system that may contain both I (2) and I (1) observables. The test is also consistent under the alternative of multicointegration, where first differences of the I (2) observables enter the cointegrating relationships. We find the null limiting distribution of this statistic and justify why our proposal improves over related approaches. Critical values are computed for a variety of situations. Additionally, building on this ADF test statistic, we propose a procedure to test the null of no stationary cointegration which overcomes the drawback, suffered by any residual-based method, of the lack of power with respect to some relevant alternatives. Finally, a Monte Carlo experiment is carried out and an empirical application is provided as an illustrative example.

Keywords: I(2) systems; stationary cointegration; multicointegration; residual-based tests. (search for similar items in EconPapers)
JEL-codes: C12 C22 C32 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ger
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Related works:
Journal Article: A residual-based ADF test for stationary cointegration in I(2) settings (2015)
Working Paper: A Residual-Based ADF Test for Stationary Cointegration in I (2) Settings (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1439

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