Is double trouble? How to combine cointegration tests
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Date
2008-11-26T14:41:51Z
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Abstract
This paper suggests a combination procedure to exploit the imperfect correlation of cointegration tests to develop a more powerful meta test. To exemplify, we
combine Engle and Granger (1987) and Johansen (1988) tests. Either of these un-
derlying tests can be more powerful than the other one depending on the nature of the data-generating process. The new meta test is at least as powerful as the
more powerful one of the underlying tests irrespective of the very nature of the data
generating process. At the same time, our new meta test avoids the size distortion
inherent in separately applying multiple tests for cointegration to the same data set.
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Keywords
Cointegration, Meta test, Multiple testing