Showing papers on "Cointegration published in 1992"
TL;DR: In this paper, the authors present an examination of such models for variables integrated at most of order one, when tests for cointegration involve statistics with non-standard asymptotic distributions.
Abstract: The recent literature on maximum likelihood cointegration theory studies Gaussian vector autoregression (VAR) models allowing for some deterministic components in the form of polynomials in time. An examination is presented of such models for variables integrated at most of order one, when tests for cointegration involve statistics with non-standard asymptotic distributions. The asymptotic distributions of these test statistics are known to be functions of the distribution of certain matrices of stochastic variables involving integrals of Brownian motions. In fact, conditional on which restrictions on the coefficients of the polynomial in time are valid, different asymptotic distributions are obtained. The cases examined exhaust the hypotheses relevant to the cointegration rank analysis of I(1) variables in models involving up to linear trends and possibly seasonal dummies. The examination solves the numerical problem in making most of the interesting quantiles of these asymptotic distributions available to the applied econometrician.
2,831 citations
TL;DR: In this paper, the authors developed some new tests for structural hypotheses in the framework of a multivariate error correction model with Gaussian errors, based on an analysis of the likelihood function and motivated by an empirical investigation of the PPP relation and the UIP relation for the United Kingdom.
1,822 citations
TL;DR: In this paper, Monte Carlo analysis and an empirical study of U.K. money demand demonstrate that when cointegration exists, the error-correction test generally is more powerful than the Dickey-Fuller test.
Abstract: A cointegration test statistic based upon estimation of an error-correction model can be approximately normally distributed when no cointegration is present. By contrast, the equivalent Dickey-Fuller statistic applied to residuals from a static relationship has a nonstandard asymptotic distribution. When cointegration exists, the error-correction test generally is more powerful than the Dickey-Fuller test. These differences arise because the latter imposes a possibly invalid common factor restriction. The issue is general and has ramifications for system-based cointegration tests. Monte Carlo analysis and an empirical study of U.K. money demand demonstrate the differences in power. Copyright 1992 by Blackwell Publishing Ltd
1,311 citations
TL;DR: In this paper, the authors derived the large-sample distributions of Lagrange multiplier (LM) tests for parameter instability against several alternatives of interest in the context of cointegrated regression models.
Abstract: This article derives the large-sample distributions of Lagrange multiplier (LM) tests for parameter instability against several alternatives of interest in the context of cointegrated regression models. The fully modified estimator of Phillips and Hansen is extended to cover general models with stochastic and deterministic trends. The test statistics considered include the SupF test of Quandt, as well as the LM tests of Nyblom and of Nabeya and Tanaka. It is found that the asymptotic distributions depend on the nature of the regressor processes—that is, if the regressors are stochastic or deterministic trends. The distributions are noticeably different from the distributions when the data are weakly dependent. It is also found that the lack of cointegration is a special case of the alternative hypothesis considered (an unstable intercept), so the tests proposed here may also be viewed as a test of the null of cointegration against the alternative of no cointegration. The tests are applied to three data se...
1,201 citations
TL;DR: In this paper, the authors present evidence concerning the number of common stochastic trends in the equity markets of the U.S., Japan, England, Germany, and Canada.
1,007 citations
TL;DR: In this article, it is shown how the table in S. G. Johansen and K. Juselius (1990) can be applied to make inference on the cointegration rank.
Abstract: It is shown how the table in S. Johansen and K. Juselius (1990) can be applied to make inference on the cointegration rank. The reason that inference is difficult is that the limit distribution of the proposed likelihood ratio test statistic depends on which parameter is considered under the null. It is shown how a recent procedure for unit root testing suggested by S. G. Pantula (1989) solves the problem. The procedure is illustrated by some published econometric examples. Copyright 1992 by Blackwell Publishing Ltd
975 citations
TL;DR: In this article, it was shown that the two estimators are identical if the conditioning variables are weakly exogenous for the cointegrating relations and their adjustment coefficients, when there is no weak exogeneity.
965 citations
TL;DR: In this paper, the authors discuss autoregressive models allowing for processes integrated of order 2 and the various types of cointegration that can occur, and a statistical analysis of such models that allows for the determination of the order of integration and the cointegrating ranks is outlined.
655 citations
01 Dec 1992
TL;DR: In this article, the small sample properties of different tests for multivariate cointegration like Johansen's trace test, stock & Watson's common trend test, Phillips & Ouliaris' principal component test, as well as co-integration rank decisions based on order selection criteria are compared.
Abstract: This paper compares the small sample properties of different tests for multivariate cointegration like Johansen's trace test, stock & Watson's common trend test, Phillips & Ouliaris' principal component test, as well as cointegration rank decisions based on order selection criteria. Under the null hypothesis of non-cointegration we find a slow convergence rate of the test statistics. In bivariate models the Phillips & Ouliaris test is extremely dependent on the specification and is outperformed by the other procedures. For trivariate processes we find dependence of the power results on the dynamic specification. The lag order is successfully estimated by order selection criteria.
594 citations
TL;DR: In this article, impulse response or dynamic multiplier analysis of vector autoregressive systems with cointegrated variables is considered and the asymptotic distribution of the responses estimated with Johansen's (1988) maximum likelihood procedure is derived.
479 citations
TL;DR: In this article, the authors show that there is bidirectional causality between stock prices measured by S&P 500 index and the effective exchange rate of the dollar, at least in the short-run.
Abstract: The literature on the relation between stock prices and exchange rates is very poor and includes few studies that have argued that exchange rate changes do effect stock prices.By relying on the portfolio approach to exchange rate determination, it is argued that a change in stock prices could also have an impact on exchange rates, i.e. there could be a two-way relationship between exchange rates and stock prices. Granger concept of causality as well as cointegration technique are employed to support this conjecture. The empirical results show that there is bidirectional causality between stock prices measured by S&P 500 index and the effective exchange rate of the dollar, at least in the short-run. The cointegration analysis reveals that there is no long-run relationship between two variables.
TL;DR: In this paper, the authors tried to establish whether a causal link between exports and productivity exists for four developed market economies based on cointegration and Granger- causality techniques and found that an "outward-looking" regime favours the productivity performance of developing market economies as well as that of developing countries.
Abstract: This paper tries to establish whether a causal link between exports and productivity exists for four developed market economies based on cointegration and Granger- causality techniques. These techniques allow serious problems encountered in previous attempts to examine this relationship to be overcome, while recent trade theory suggests that the relationship between trade and productivity is fundamentally ambiguous. The findings of the econometric analysis suggest that an "outward-looking" regime favours the productivity performance of developed market economies as well as that of developing countries.
TL;DR: This paper showed that yields to maturity of U.S. Treasury bills are cointegrated and that, during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors.
Abstract: This paper shows that yields to maturity of U.S. Treasury bills are cointegrated and that, during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors. This cointegrating relationship implies that a single nonstationary common factor underlies the time-series behavior of each yield to maturity and that risk premia are stationary. An error-correction model that uses spreads as the error-correction terms is unstable over the Federal Reserve's policy regime changes, but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields. Copyright 1992 by MIT Press.
01 Feb 1992
TL;DR: In this paper, the authors show that yields to maturity of U.S. Treasury bills are cointegrated, and that during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors.
Abstract: This paper shows that yields to maturity of U.S. Treasury bills are cointegrated, and that during periods when the Federal Reserve specifically targeted short-term interest rates, the spreads between yields of different maturity define the cointegrating vectors. This cointegrating relationship implies that a single non-stationary common factor underlies the time series behavior of each yield to maturity and that risk premia are stationary. An error correction model which uses spreads as the error correction terms is unstable over the Federal Reserve's policy regime changes, but a model using post 1982 data is stable and is shown to be useful for forecasting changes in yields.
TL;DR: In this paper, a recently developed methodology of the cointegration test is employed to determine whether energy consumption has a long-run equilibrium relationship with the level of income or employment.
TL;DR: In this article, the authors identify the long-run tendency of U.S. external imbalances by identifying the "long run tendency" of the US current account balance and investigating its behavior.
Abstract: This paper seeks to understand the recent history of U.S. external imbalances by identifying the "long-run tendency" of the U.S. current account balance and investigating its behavior. The procedure that is adopted is to estimate cointegrating regressions between U.S. exports and imports of goods and services. Estimates from cointegrating regressions between several measures of U.S. exports and imports show that up to about the end of 1983 the U.S. current account tended toward zero. Since that time, there has been an apparent structural shift resulting in a long-run tendency for a deficit in excess of $100 billion per year. Copyright 1992 by MIT Press.
TL;DR: In this paper, the authors used unit root and cointegration tests to examine the relationships among the stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the United States.
Abstract: This study uses unit root and cointegration tests to examine the relationships among the stock markets in Hong Kong, South Korea, Singapore, Taiwan, Japan, and the United States. All the stock prices are analyzed both individually and collectively to test for international market efficiency. Unit roots in stock prices are found. Pairwise and higher-order cointegration tests indicate that there is no evidence of cointegration among the stock prices. The findings suggest that the stock prices in major Asian markets and the United States are weak-form efficient individually and collectively in the long run. It also implies that international diversification among the markets is effective.
TL;DR: In this paper, the authors show that there is no general equivalence between the existence of arbitrage opportunities and cointegration or, for that matter, a lack of co-integration, and that whether asset prices are cointegrated is a function of the relevant model.
TL;DR: In this article, restricted vector autoregressions are used to examine the sources of macroeconomic fluctuations in Swedish annual data (1875-1986) to identify a VAR system with common stochastic trends subject to transitory and permanent changes in average growth, and investigate the system's responses to permanent shocks.
Abstract: In this paper we describe how restricted vector autoregressions can be employed to examine the sources of macroeconomic fluctuations. We show how cointegration restrictions can be used to identify a VAR system with common stochastic trends subject to transitory and permanent changes in average growth, and how we may investigate the system's responses to permanent shocks, i.e. to innovations to the trends. Theoretical cointegration vectors are derived from a small open economy growth model for terms of trade, real GDP, real consumption, and real investments. Applying these methods to Swedish annual data (1875–1986) we find that permanent real (supply) shocks account for most of the fluctuations in GDP, even in the short run.
TL;DR: In this article, it is suggested that trends be excluded in the levels regression for maximal efficiency, and a chi-square test for the validity of trend exclusion is presented, where the asymptotic distributions of standard cointegration test statistics depend both upon regressor trends and estimation detrending methods.
TL;DR: In this paper, the authors investigated domestic price determination in Denmark using three kinds of macroeconomic explanations: (1) internal labor market theories describing the relation between price and wage inflation, (2) pure monetarist theory describing the effect of excess money on the inflation rate, and (3) external theories described the foreign transmission effects on a small open economy.
TL;DR: In this article, the authors developed testing procedures for cointegration and seasonal co-integration for nonstationary time series which have unit roots at seasonal frequencies as well as at the zero frequency.
TL;DR: A survey of recent developments in the field of econometric modelling with cointegrated time series can be found in this paper, where the authors describe the testing and estimation procedures which have become increasingly popular in the recent applied literature.
Abstract: . This paper provides a survey of some of the recent developments in the field of econometric modelling with cointegrated time series. In particular, we describe the testing and estimation procedures which have become increasingly popular in the recent applied literature. In addition to the ‘two-stage’ procedure proposed by Engle and Granger, we consider extensions to the modelling of dynamic models with cointegrated variables, such as the estimation of models with multiple cointegration vectors, simultaneous systems, models with seasonally integrated and cointegrated variables. Furthermore, we illustrate the practical application of the techniques describes in the paper by means of a tutorial data set.
TL;DR: In this article, the multivariate cointegration testing procedures were used to evaluate the law of one price (LOP) for prices in five international wheat markets, and the results indicate that the LOP fails as a long-run equilibrium relationship when transportation costs are ignored.
Abstract: The multivariate cointegration testing procedures recently developed by Johansen are used to evaluate the law of one price (LOP) for prices in five international wheat markets. Efficient arbitrage and trade activities should ensure that individual wheat prices in spatially separated markets are linked through a common long-run equilibrium. The results indicate that the LOP fails as a long-run equilibrium relationship when transportation costs are ignored. However, if wheat prices are adjusted for freight rates, the LOP is fully supported.
TL;DR: In this paper, the concepts of cointegration and exogeneity, focusing on analytical structure, statistical inference, and implications for policy analysis, are discussed. But the focus of the article is not on policy analysis.
TL;DR: For the period starting with the floating of the US dollar, the authors found evidence that long-run stationarity of the demand function for M2 (but not M1) requires inclusion of the effective exchange rate.
TL;DR: In this article, the effects of dynamic specification on the size and power of three cointegration tests are investigated. But the authors focus on the residual augmented Dickey-Fuller unit root test and the likelihood ratio test in vector autoregressive models.
Abstract: textThe article discusses the use of some Monte Carlo experiments to investigate the effects of dynamic specification on the size and power of three cointegration tests. The first test, proposed by Engle and Granger (1987), is the residual augmented Dickey-Fuller unit root test. The second is a Wald test for the significance of the error correction mechanism in an autoregressive-distributed lag model, suggested by Boswijk (1989) and further developed in Boswijk (1991). The third test is a likelihood ratio test in a vector autoregressive model, proposed by Johansen (1988) and extended in Johansen and Juselius (1990).
TL;DR: In this paper, the authors test cointegration restrictions that are consistent with the expectations hypothesis of the term structure by employing the full-information maximum likelihood methods developed by Johansen, and they find that short-term speculative returns from long-term bonds do not conform to the expectation hypothesis.
Abstract: I test cointegration restrictions that are consistent with the expectations hypothesis of the term structure by employing the full-information maximum likelihood methods developed by Johansen. Yield curves appear to be the result of cointegration among interest rates. The cointegration vectors that best describe the long-term impact of interest-rate levels on interest-rate changes can often be written as linear combinations of interest-rate spreads. There is, however, difficulty in keeping short-term yields in such a restricted cointegrated system with other interest rates. Short-term speculative returns from long-term bonds do not conform to the expectations hypothesis.
TL;DR: In this paper, a time-series counterpart of Engel's law, which is that the expenditure share on food declines as the economy grows, is investigated and the main purpose of this paper is to test whether Houthakker's addilog utility function can simultaneously explain this time series observation and cross-sectional observations concerning Engel's Law.
Abstract: A time-series counterpart of Engel's law is that the expenditure share on food declines as the economy grows. The main purpose of this paper is to test whether Houthakker's addilog utility function can simultaneously explain this time-series observation and cross-sectional observations concerning Engel's law. Ogaki and Park's cointegration approach is used to estimate parameters of the utility function from time-series data. Total expenditure elasticities implied by the estimated addilog utility function are compared with estimates of the elasticities from cross-sectional data.
TL;DR: In this paper, the authors exposits Wiener distribution theory for I(1) time series as an overview to a special issue on testing integration and cointegration, and applies it to an autoregressive process, a bivariate regression, and the similarity and power properties of two single-equation tests for co-integration.
Abstract: The paper exposits Wiener distribution theory for I(1) time series as an overview to a special issue on testing integration and cointegration. The behavior of an I(1) series is related to a Wiener process to derive the limiting distribution of its sample mean. Other Wiener processes are related to functions of the normal distribution. The analysis is applied to an autoregressive process, a bivariate regression, and the similarity and power properties of two single-equation tests for cointegration. Systems analyses of cointegration based on the Johansen approach are derived by successive concentration of the likelihood function. An empirical model for Norwegian consumption expenditure is examined. Copyright 1992 by Blackwell Publishing Ltd