Response Surface Regressions for Critical Value Bounds and Approximate p‐values in Equilibrium Correction Models1

Sebastian Kripfganz · Daniel C. Schneider

351 citations0/0 files storedOxford Bulletin of Economics and Statistics

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Abstract

Abstract We consider the popular ‘bounds test’ for the existence of a level relationship in conditional equilibrium correction models. By estimating response surface models based on about 95 billion simulated F ‐statistics and 57 billion t ‐statistics, we improve upon and substantially extend the set of available critical values, covering the full range of possible sample sizes and lag orders, and allowing for any number of long‐run forcing variables. By computing approximate P ‐values, we find that the bounds test can be easily oversized by more than 5 percentage points in small samples when using asymptotic critical values.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1979Distribution of the Estimators for Autoregressive Time Series with a Unit Root 2001Bounds testing approaches to the analysis of level relationships 1981Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root 1979Distribution of the Estimators for Autoregressive Time Series With a Unit Root 2005The saving and investment nexus for China: evidence from cointegration tests 1984Testing for Unit Roots in Autoregressive-Moving Average Models of Unknown Order 1996Numerical distribution functions for unit root and cointegration tests

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