LINEAR AGGREGATION IN COINTEGRATED SYSTEMS

In this paper, the problem of aggregation of integrated time series va riables is contrasted with the case of aggregation of stationary varia bles. In the integrated case, it is seen that a cointegration conditio n is sufficient for aggregation bias to vanish asymptotically; no anal ogous condition is available in the stationary and ergodic case. Thus tests for aggregation bias, originally designed for stationary data, c an be misleading when applied to integrated data. This may account for overrejection of the null hypothesis of no aggregation bias, when the null is true.