Low-Frequency Robust Cointegration Testing
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.
We thank participants of the Cowles Econometrics Conference, the NBER Summer Institute and the Greater New York Metropolitan Area Econometrics Colloquium, and of seminars at Chicago, Cornell, Northwestern, NYU, Rutgers, and UCSD for helpful discussions. Support was provided by the National Science Foundation through grants SES-0518036 and SES-0617811. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.