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