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Error‐correction Mechanism Tests for Cointegration in a Single‐equation Framework

1998; Wiley; Volume: 19; Issue: 3 Linguagem: Inglês

10.1111/1467-9892.00091

1467-9892

Anindya Banerjee, Juan J. Dolado, Ricardo Mestre,

Statistical Methods and Inference

A new test is proposed for cointegration in a single‐equation framework where the regressors are weakly exogenous for the parameters of interest. The test is denoted as an error‐correction mechanism (ECM) test and is based upon the ordinary least squares coefficient of the lagged dependent variable in an autoregressive distributed lag model augmented with leads of the regressors. The limit distributions of the standardized coeffi cient and t ‐ratio versions of the ECM tests are obtained and critical values are provided. These limit distributions do not depend upon nuisance parameters but they depend on the number of regressors. Finally, we compare their power properties with those of other cointegration tests available in the literature and find the circumstances under which the ECM tests have a better performance.