[Gretl-users] Cointegration Engle-Granger ?

[john w]

Thnx again Allin,
I think that skip function is not working...
When this option is checked then initial variable DF testing should be 
excluded. Right?
But now isn't.


>From: Allin Cottrell <cottrell at wfu.edu>
>Reply-To: Gretl list <gretl-users at ricardo.ecn.wfu.edu>
>To: Gretl list <gretl-users at ricardo.ecn.wfu.edu>
>Subject: Re: [Gretl-users] Cointegration Engle-Granger ?
>Date: Mon, 24 Jul 2006 21:28:49 -0400 (EDT)
>
>On Mon, 24 Jul 2006, john w wrote:
>
>>Thnx Sven and Allin,
>>Now I have another question related to EG cointegration in gretl.
>>How do I know which is the optimal lag order in EG coint test?
>
>Thanks for drawing attention to this test, which needed a bit more work!
>
>First of all, mea culpa, I now believe there was an error in the selection 
>of the p-value for the "tau" statistic in the Engle-Granger test, at least 
>in some cases.
>
>I think I misinterpreted the criterion for selecting between MacKinnon's 
>tau_nc (no constant), tau_c (with constant), etc. I was using tau_nc for 
>Engle-Granger, on the grounds that there's no constant in the (A)DF test 
>for the residuals from the cointegrating regression (which of course have 
>mean zero by construction).  But I now think, from re-reading MacKinnon 
>(1996), that the relevant factor here is not the setup of the DF regression 
>for the residuals, but whether or not the cointegrating regression itself 
>includes a constant.  (If any time-series guru out there can confirm my new 
>interpretation, I'd be grateful!)
>
>Anyway, I've "corrected" the p-value-finding code on the assumption that my 
>new interpretation is correct.  We now use tau_c if there's a constant in 
>the cointegrating regression (the default), or tau_nc if the constant in 
>that regression has been suppressed via the "--nc" flag to the "coint" 
>command.
>
>A few other things:
>
>(1) In response to John W., you can now set a "maximum lag", rather than a 
>specific lag, and have gretl test down from that maximum.  This works 
>exactly as per the adf command (see the help entry for adf).  In 
>command-line mode, as with adf, you make the "order" parameter negative to 
>invoke this option; in GUI mode, you check the box "Test down from maximum 
>lag order".
>
>(2) If you reckon you already know enough about the stationarity properties 
>of the individual variables involved, you can skip the initial per-variable 
>(A)DF tests with the option flag "--skip-df" (or by checking "Skip initial 
>DF tests" in the GUI).
>
>(3) In case you want to base something on the AIC value, this is now shown 
>for the cointegrating regression.
>
>(4) The printouts for both the ADF test and the Engle-Granger test have 
>been adjusted to make more explicit the distribution to which the given 
>p-value pertains.  Instead of just saying "t statistic" we now say, for 
>example, "tau_c(3) statistic", meaning that this is tau_c as set out by 
>MacKinnon, and that it involves 3 (potentially) cointegrated variables.  
>(If anyone finds this opaque and has a suggestion for making it clearer, 
>I'll listen.)
>
>This is all in current CVS; a new Windows snapshot will follow shortly.
>
>Allin.
>
>
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