Testing cointegration relationship in a semiparametric varying coefficient model |
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| Institution: | 1. Department of Economics, University of Arkansas, Fayetteville, AR 72701-1201, USA;2. Department of Economics, University at Albany, SUNY, Albany, NY 12222, USA;1. Department of Finance, Kellogg School of Management, Northwestern University, Evanston, IL 60208, United States;2. Department of Economics, Duke University, Durham, NC 27708, United States;1. MIT, United States;2. University of Arizona, United States;1. Department of Economics, University of Washington, Box 353330, Seattle, WA 98195, United States;2. Department of Economics, Korea University, Anam-dong, Sungbuk-gu, Seoul 136-701, Republic of Korea;1. Department of Economics, University of Rochester, Rochester, NY, 14627, United States;2. Department of Economics, Cornell University, Ithaca, NY 14850, United States;3. Department of Statistical Science, Cornell University, Ithaca, NY 14850, United States;4. Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, Xiamen 361005, China;5. MOE Key Laboratory in Econometrics, Xiamen University, Xiamen 361005, China;1. Department of Economics, U.C.L.A., 8283 Bunche Hall, Mail Stop: 147703, Los Angeles, CA 90095, USA;2. Department of Economics, M.I.T., 50 Memorial Drive, E52-391, Cambridge, MA 02142, USA;3. Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London WC1E 7AE, UK;4. Faculty of Economics, University of Cambridge, Austin Robinson Building, Sidgwick Avenue, Cambridge CB3 9DD, UK;5. Economics and Finance Department, University of Canterbury, Private Bag 4800, Christchurch 8140, New Zealand |
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| Abstract: | In this paper, we develop two cointegration tests for two varying coefficient cointegration regression models, respectively. Our test statistics are residual based. We derive the asymptotic distributions of test statistics under the null hypothesis of cointegration and show that they are consistent against the alternative hypotheses. We also propose a wild bootstrap procedure companioned with the continuous moving block bootstrap method proposed in Paparoditis and Politis (2001) and Phillips (2010) to rectify severe distortions found in simulations when the sample size is small. We apply the proposed test statistic to examine the purchasing power parity (PPP) hypothesis between the US and Canada. In contrast to the existing results from linear cointegration tests, our varying coefficient cointegration test does not reject that PPP holds between the US and Canada. |
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| Keywords: | Varying coefficient Cointegration tests PPP hypothesis Bootstrapping Semiparametric |
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