Distributions of Error Correction Tests for Cointegration

Abstract

This paper provides cumulative distribution functions, densities, and finite sample critical values for the single-equation error correction statistic for testing cointegration. Graphs and response surfaces summarize extensive Monte Carlo simulations and highlight simple dependencies of the statistic's quantiles on the number of variables in the error correction model, the choice of deterministic components, and the estimation sample size. The response surfaces provide a convenient way for calculating finite sample critical values at standard levels; and a computer program, freely available over the Internet, can be used to calculate both critical values and p-values. Three empirical examples illustrate these tools.

Keywords: critical value, distribution function, Monte Carlo, response surface

JEL Classification: C22, C52