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Low-Frequency Robust Cointegration Testing

Author

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  • Ulrich Müller
  • Mark W. Watson
Abstract
Standard inference in cointegrating models is fragile because it relies on an assumption of an I(1) model for the common stochastic trends, which may not accurately describe the data's persistence. This paper discusses efficient low-frequency inference about cointegrating vectors that is robust to this potential misspecification. A simple test motivated by the analysis in Wright (2000) is developed and shown to be approximately optimal in the case of a single cointegrating vector.

Suggested Citation

  • Ulrich Müller & Mark W. Watson, 2009. "Low-Frequency Robust Cointegration Testing," NBER Working Papers 15292, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15292
    Note: TWP
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    Cited by:

    1. Castelnuovo, Efrem, 2010. "Tracking U.S. inflation expectations with domestic and global indicators," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1340-1356, November.
    2. James A. Duffy & Jerome R. Simons, 2020. "Cointegration without Unit Roots," Papers 2002.08092, arXiv.org, revised Apr 2023.
    3. Pelgrin, Florian & Venditti, Alain, 2022. "On the long-run fluctuations of inheritance in two-sector OLG models," Journal of Mathematical Economics, Elsevier, vol. 101(C).
    4. Michael D. Bauer & Glenn D. Rudebusch, 2020. "Interest Rates under Falling Stars," American Economic Review, American Economic Association, vol. 110(5), pages 1316-1354, May.
    5. Jungbin Hwang & Gonzalo Valdés, 2020. "Low Frequency Cointegrating Regression in the Presence of Local to Unity Regressors and Unknown Form of Serial Dependence," Working papers 2020-03, University of Connecticut, Department of Economics, revised Aug 2020.
    6. Hwang, Jungbin & Sun, Yixiao, 2018. "SIMPLE, ROBUST, AND ACCURATE F AND t TESTS IN COINTEGRATED SYSTEMS," Econometric Theory, Cambridge University Press, vol. 34(5), pages 949-984, October.
    7. Zhang, Rongmao & Chan, Ngai Hang, 2018. "Portmanteau-type tests for unit-root and cointegration," Journal of Econometrics, Elsevier, vol. 207(2), pages 307-324.
    8. Osabuohien-Irabor Osarumwense & Julian I. Mbegbu, 2017. "Power and Size analysis of Co-integration tests in Conditional Heteroskedascity: A Monte Carlo Simulation," Romanian Statistical Review, Romanian Statistical Review, vol. 65(3), pages 17-34, September.
    9. Moreira, Humberto Ataíde & Moreira, Marcelo J., 2013. "Contributions to the Theory of Optimal Tests," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 747, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    10. Khalaf, Lynda & Urga, Giovanni, 2014. "Identification robust inference in cointegrating regressions," Journal of Econometrics, Elsevier, vol. 182(2), pages 385-396.

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    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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