Why Most Published Results on Unit Root and Cointegration are False

14 Pages Posted: 10 Jul 2015 Last revised: 2 Jan 2016

See all articles by Hari Luitel

Hari Luitel

Algoma University

Gerry Mahar

Algoma University

Date Written: December 22, 2015

Abstract

The method of cointegration analysis for modeling nonstationary economic time series variables has become a dominant paradigm in empirical economic research. Critics argue that a cointegration analysis produces results that are, at best, useless and, at worst, dangerous. In this research, we explain why and how the use of a cointegration analysis in economic research will likely lead to findings and subsequent recommendations for public policy that will be unsound, misleading and potentially harmful. We recommend that, except for pedagogical review of policy failure of a historical magnitude, this method not be used in any analysis that affects public policy.

Keywords: cointegration analysis, unit root, time series, econometric modeling, economic policy, policy analysis

JEL Classification: C22, C50, E60

Suggested Citation

Luitel, Hari and Mahar, Gerry, Why Most Published Results on Unit Root and Cointegration are False (December 22, 2015). Available at SSRN: https://ssrn.com/abstract=2628645 or http://dx.doi.org/10.2139/ssrn.2628645

Hari Luitel (Contact Author)

Algoma University ( email )

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Sault Ste. Marie, Ontario P6A 2G4
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705-949-2301 (Phone)
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HOME PAGE: http://www.algomau.ca/

Gerry Mahar

Algoma University ( email )

1520 Queen St. East
Sault Ste. Marie, Ontario P6A 4G4
Canada
705-949-2301 ext 4758 (Phone)
705-949-6583 (Fax)

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