Testing for cointegrating relations - A bootstrap approach

Abstract

Using Monte Carlo methods together with the Bootstrap critical values, we have studied the properties of two tests (Trace and L-max), derived by Johansen (1988) for testing for cointegration in V AR systems. Regarding the size of the tests, the results show that both of the test methods perform satisfactorily when there are mixed stationary and nonstationary components in the model. The analyses of the power functions indicate that both of the test methods can effectively detect the present of cointegration vector(s). Finally, when considering the size and power properties, we could not find any noticeable differences between the two test methods.