@techreport{NBERt0171,
title = "Testing for Cointegration When Some of the Contributing Vectors are Known",
author = "Michael T. K. Horvath and Mark W. Watson",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Technical Working Paper Series",
number = "171",
year = "1994",
month = "December",
doi = {10.3386/t0171},
URL = "http://www.nber.org/papers/t0171",
abstract = {Many economic models imply that ratios, simple differences, or `spreads' of variables are I(0). In these models, cointegrating vectors are composed of 1's, 0's and -1's, and contain no unknown parameters. In this paper we develop tests for cointegration that can be applied when some of the cointegrating vectors are known under the null or under the alternative hypotheses. These tests are constructed in a vector error correction model (VECM) and are motivated as Wald tests in the version of this Gaussian model. When all of the cointegrating vectors are known under the alternative, the tests correspond to the standard Wald tests for the inclusion of error correction terms in the VAR. Modifications of this basic test are developed when a subset of the cointegrating vectors contains unknown parameters. The asymptotic null distribution of the statistics are derived, critical values are determined, and the local power properties of the test are studied. Finally, the test is applied to data on foreign exchange future and spot prices to test the stability of forward-spot premium.},
}