Low-Frequency Robust Cointegration Testing

Ulrich Müller, Mark W. Watson

NBER Working Paper No. 15292
Issued in August 2009
NBER Program(s):   TWP

Standard inference in cointegrating models is fragile because it relies on an assumption of an I(1) model for the common stochastic trends, which may not accurately describe the data's persistence. This paper discusses efficient low-frequency inference about cointegrating vectors that is robust to this potential misspecification. A simple test motivated by the analysis in Wright (2000) is developed and shown to be approximately optimal in the case of a single cointegrating vector.

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Acknowledgments

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