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Critical values for an F-test for cointegration in a multivariate model

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Abstract:

Critical values for a test for cointegration are generated based on the joint significance of the levels terms in an error-correction equation. It is shown that the appropriate critical values are higher than those derived from the standard F- distribution. The power properties of this test are compared with those of the Engle-Granger ( Econometrica , 55 , 251-76, 1987) test and Kremers et al .'s ( Oxford Bulletin of Economics and Statistics , 54 (3), 325-48, 1992 ) t- test based on the t- statistic from an error-correction equation. The F- test has higher power than the Engle-Granger test but lower power than the t- form of the error-correction test. However, the F- form of the test has the advantage that its distribution is independent of the parameters of the problem being considered. Finally, a test is considered for cointegration between UK and US interest rates. It is shown that the F- test rejects the null of no cointegration between these variables although the Engle-Granger test fails to do so.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840412331315051

Affiliations: Department of Economics University of Sheffield 9 Mappin Street Sheffield S1 4DT UK

Publication date: February 1, 2005

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