Testing for nontrivial cointegration

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Authors: Javier Hualde, José Olmo
Cited by: 0

Abstract

Cointegration is pivotal in analyzing long-run equilibrium relationships among economic variables. Traditional cointegration models have been effective in handling mixed-order integrated variables, but they can lead to misleading conclusions from an equilibrium perspective if trend stationary observables are involved. This type of variable leads to the so-called trivial cointegration, which might falsely suggest a long-run relationship where none exists. Testing for nontrivial cointegration is possible using standard methods, but this necessarily requires a sequential approach, and it typically leads to an inconsistent test. This paper proposes a direct and consistent test for nontrivial cointegration in a bivariate setting motivated by the different behavior of the sample correlation between the observables under various cointegration scenarios. Our testing approach is compared with standard methods by means of a Monte Carlo experiment, and we include the analysis of an empirical application to the term structure of government nominal bond yields for the European Monetary Union area.

Fields of Study & Subjects

Monetary Policy and Economic Impact Diverse Scientific and Economic Studies Financial Risk and Volatility Modeling

Publication details

Journal / source
Figshare
Publication date
6 March 2026
Language
EN
Document type
Dataset