Testing cointegration relationship in a semiparametric varying coefficient model

In this paper, we develop two cointegration tests for two varying coefficient cointegration regression models, respectively. Our test statistics are residual based. We derive the asymptotic distributions of test statistics under the null hypothesis of cointegration and show that they are consistent...

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Bibliographic Details
Published in:Journal of econometrics 2014-01, Vol.178 (1), p.57-70
Main Authors: Gu, Jingping, Liang, Zhongwen
Format: Article
Language:English
Subjects:
Asymptotic methods
Bootstrap mechanism
Bootstrap method
Bootstrapping
Canada
Coefficient of correlation
Cointegration
Cointegration analysis
Cointegration tests
Economic models
Economic theory
Hypotheses
Linear models
Model testing
PPP hypothesis
Purchasing power parity
Regression analysis
Semiparametric
Statistical analysis
Studies
U.S.A
Varying coefficient
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Summary:In this paper, we develop two cointegration tests for two varying coefficient cointegration regression models, respectively. Our test statistics are residual based. We derive the asymptotic distributions of test statistics under the null hypothesis of cointegration and show that they are consistent against the alternative hypotheses. We also propose a wild bootstrap procedure companioned with the continuous moving block bootstrap method proposed in  Paparoditis and Politis (2001) and  Phillips (2010) to rectify severe distortions found in simulations when the sample size is small. We apply the proposed test statistic to examine the purchasing power parity (PPP) hypothesis between the US and Canada. In contrast to the existing results from linear cointegration tests, our varying coefficient cointegration test does not reject that PPP holds between the US and Canada.
ISSN:0304-4076
1872-6895
DOI:10.1016/j.jeconom.2013.08.006