A Residual-Based Cointegration Test For Near Unit Root Variables
Methods of inference based on a unit root assumption in the data are typically not robust to even small deviations from this assumption. This paper proposes robust procedures for a residual-based test of co-integration when the data are generated by a near unit root process. A Bonferroni method is used to address the uncertainty regarding the exact degree of persistence in the process. The author thus provide a method for valid inference in multivariate near unit root processes where standard co-integration tests may be subject to substantial size distortions and standard OLS inference may lead to spurious results.