CFDP 1538

A New Approach to Robust Inference in Cointegration

Author(s): 

Publication Date: October 2005

Pages: 15

Abstract: 

A new approach to robust testing in cointegrated systems is proposed using nonparametric HAC estimators without truncation. While such HAC estimates are inconsistent, they still produce asymptotically pivotal tests and, as in conventional regression settings, can improve testing and inference. The present contribution makes use of steep origin kernels which are obtained by exponentiating traditional quadratic kernels. Simulations indicate that tests based on these methods have improved size properties relative to conventional tests and better power properties than other tests that use Bartlett or other traditional kernels with no truncation.

Keywords: 

Cointegration, HAC estimation, long-run covariance matrix, robust inference, steep origin kernel, fully modified estimation

JEL Classification Codes:  C12; C14; C22

See CFP: 1203