Response surface regressions for critical value bounds and approximate p-values in equilibrium correction models
Oxford Bulletin of Economics and Statistics, 82:6, 1456–1481 (2020)
We consider the popular ‘bounds test’ for the existence of a level relationship in conditional equilibrium correction models. By estimating response surface models based on about 95 billion simulated F-statistics and 57 billion t-statistics, we improve upon and substantially extend the set of available critical values, covering the full range of possible sample sizes and lag orders, and allowing for any number of long-run forcing variables. By computing approximate p-values, we ﬁnd that the bounds test can be easily oversized by more than 5 percentage points in small samples when using asymptotic critical values.
Keywords: time series