EGTEST Procedure

@EGTEST performs an Engle-Granger residual-based cointegration test. It uses @EGTESTRESIDS for the actual test on the residuals—it runs the preliminary regression and passes the residuals and options on to @EGTESTRESIDS for the final calculations.

@EGTEST( options ) start end

# list of endogenous variables(the first variable listed is used as the dependent variable)

Wizards

This is included as one of the tests in the Time Series—Cointegration Test Wizard.

Parameters

start, end

range for first stage regression. By default, the maximum range permitted by the variables.

Options for Selecting Lags

LAGS=number of additional lags [0]

MAXLAGS=maximum number of additional lags to consider [number of observations^.25]

You can use either of these to select either the (maximum) number of additional lags. If you don't use either option, the LAGS default of 0 will be used for METHOD=INPUT and the MAXLAGS default will be used for the others.

METHOD=[INPUT]/AIC/BIC/HQ/TTEST/GTOS

METHOD=INPUT uses the input number of LAGS only. METHOD=AIC/BIC/HQ tests the D-F regressions for everything from 0 to LAGS/MAXLAGS and chooses the minimizer for the chosen criterion. METHOD=TTEST/GTOS starts with the full set of lags and deletes lags as long as the final one has a marginal significance level less than the cutoff given by the SIGNIF option. (GTOS is short for General-TO-Specific).

SIGNIF=cutoff significance level for METHOD=TTEST or GTOS[.10]

Other Options

DET=NONE/[CONSTANT]/TREND

Choose what deterministic components are included in the regression. This changes the critical values.

[PRINT]/NOPRINT

TITLE=Title for output ["Engle-Granger Cointegration Test"]

Variables Defined

%NOBS	number of regression observations + 1 (tables are based upon this) (INTEGER)
%CDSTAT	test statistic (REAL)
%NVAR	number of variables (INTEGER)
%%AUTOP	number of lags used (INTEGER)

Example

This tests two series for unit roots (a necessary first step), then does an Engle-Granger test with fixed lags=1.

@dfunit(det=trend,lags=1) gfr

@dfunit(det=trend,lags=1) pe

@egtest(det=trend,lags=1)

# gfr pe

Sample Output

This shows the unit root test for the two series (unit roots are accepted in both cases) and the Engle-Granger test. The null of no cointegration is accepted, so we conclude that the series are not cointegrated.

Dickey-Fuller Unit Root Test, Series GFR

Regression Run From 1915:01 to 1984:01

Observations 71

With intercept and trend

Using fixed lags 1

Sig Level Crit Value

1%(**) -4.09086

5%(*) -3.47302

10% -3.16346

T-Statistic -1.47407

Dickey-Fuller Unit Root Test, Series PE

Regression Run From 1915:01 to 1984:01

Observations 71

With intercept and trend

Using fixed lags 1

Sig Level Crit Value

1%(**) -4.09086

5%(*) -3.47302

10% -3.16346

T-Statistic -1.47126

Engle-Granger Cointegration Test

Null is no cointegration (residual has unit root)

Regression Run From 1915:01 to 1984:01

Observations 71

Using fixed lags 1

Constant and linear trend in cointegrating vector

Critical Values from MacKinnon for 2 Variables

Test Statistic -2.43754

1%(**) -4.55210

5%(*) -3.91658

10% -3.59815