CFDP 1329

A CUSUM Test for Cointegration Using Regression Residuals

Author(s): 

Publication Date: September 2001

Pages: 21

Abstract: 

We show that the conventional CUSUM test for structural change can be applied to cointegrating regression residuals leading to a consistent residual based test for the null hypothesis of cointegration. The proposed tests are semiparametric and utilize fully modified residuals to correct for endogeneity and serial correlation and to scale out nuisance parameters. The limit distribution of the test is derived under both the null and the alternative hypothesis. The tests are easy to use and are found to perform quite well in a Monte Carlo experiment.

Keywords: 

Bandwidth, CUSUM test, Fully modified regression, Null of cointegration, Residual based test, Semiparametric method

JEL Classification Codes:  C22

See CFP: 1046