Omitted variables in cointegration analysis

Pashourtidou, Nicoletta (2003) Omitted variables in cointegration analysis. Southampton, University of Southampton (Discussion Papers in Economics and Econometrics 0304).


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This paper investigates the effects of the omission of relevant variables from the statistical model on cointegration analysis, proposed by Johansen (1988, 1991). We show that underspecification of the statistical model leads to either failure in detecting cointegration or underestimation of the cointegrating rank. Although in the underspecified statistical model the estimator of the detected cointegrating vectors is shown to be consistent, this is not the case for the estimators of the adjustment coefficient matrix and the variance of the error term. The asymptotic analysis is supplemented by a Monte Carlo experiment and an empirical example.

Item Type: Monograph (Discussion Paper)
Keywords: cointegration, omitted variables, asymptotics, Monte Carlo
Subjects: H Social Sciences > HA Statistics
Divisions : University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 33205
Accepted Date and Publication Date:
2003Made publicly available
Date Deposited: 18 May 2006
Last Modified: 27 Mar 2014 18:20

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