A RESIDUAL-BASED TEST OF THE NULL OF COINTEGRATION AGAINST THE ALTERNATIVE OF NO COINTEGRATION

This paper proposes a residual-based test of the null of cointegration using a structural single equation model. It is shown that the limiti ng distribution of the test statistic for cointegration can be made fr ee of nuisance parameters when the cointegrating relation is efficient ly estimated. The limiting distributions are given in terms of a mixtu re of a Brownian bridge and vector Brownian motion. It is also shown t hat this test is consistent. Critical values are given for standard, d emeaned, and demeanded cases. Combining results from our test for coin tegration with results from the Phillips-Ouliaris test for no cointegr ation, we find that there is evidence of cointegration between real co nsumption and real disposable income over the postwar period.