arch.unitroot.cointegration.phillips_ouliaris

arch.unitroot.cointegration.phillips_ouliaris(y: ndarray | Series, x: ndarray | DataFrame, trend: 'n' | 'c' | 'ct' | 'ctt' = 'c', *, test_type: 'Za' | 'Zt' | 'Pu' | 'Pz' = 'Zt', kernel: str = 'bartlett', bandwidth: int | None = None, force_int: bool = False) → PhillipsOuliarisTestResults[source]

Test for cointegration within a set of time series.

Parameters:
y: ndarray | Series

The left-hand-side variable in the cointegrating regression.

x: ndarray | DataFrame

The right-hand-side variables in the cointegrating regression.

trend: 'n' | 'c' | 'ct' | 'ctt' = 'c'

Trend to include in the cointegrating regression. Trends are:

  • ”n”: No deterministic terms

  • ”c”: Constant

  • ”ct”: Constant and linear trend

  • ”ctt”: Constant, linear and quadratic trends

test_type: 'Za' | 'Zt' | 'Pu' | 'Pz' = 'Zt'

The test statistic to compute. Supported options are:

  • ”Za”: The Zα test based on the the debiased AR(1) coefficient.

  • ”Zt”: The Zt test based on the t-statistic from an AR(1).

  • ”Pu”: The Pᵤ variance-ratio test.

  • ”Pz”: The Pz test of the trace of the product of an estimate of the long-run residual variance and the inner-product of the data.

See the notes for details on the test.

kernel: str = 'bartlett'

The string name of any of any known kernel-based long-run covariance estimators. Common choices are “bartlett” for the Bartlett kernel (Newey-West), “parzen” for the Parzen kernel and “quadratic-spectral” for the Quadratic Spectral kernel.

bandwidth: int | None = None

The bandwidth to use. If not provided, the optimal bandwidth is estimated from the data. Setting the bandwidth to 0 and using “unadjusted” produces the classic OLS covariance estimator. Setting the bandwidth to 0 and using “robust” produces White’s covariance estimator.

force_int: bool = False

Whether the force the estimated optimal bandwidth to be an integer.

Returns:

Results of the Phillips-Ouliaris test.

Return type:

PhillipsOuliarisTestResults

See also

arch.unitroot.ADF

Augmented Dickey-Fuller testing.

arch.unitroot.PhillipsPerron

Phillips & Perron’s unit root test.

arch.unitroot.cointegration.engle_granger

Engle & Granger’s cointegration test.

Notes

Warning

The critical value simulation is on-going and so the critical values may change slightly as more simulations are completed. These are still based on far more simulations (minimum 2,000,000) than were possible in 1990 (5000) that are reported in [1].

Supports 4 distinct tests.

Define the cross-sectional regression

\[y_t = x_t \beta + d_t \gamma + u_t\]

where \(d_t\) are any included deterministic terms. Let \(\hat{u}_t = y_t - x_t \hat{\beta} + d_t \hat{\gamma}\).

The Zα and Zt statistics are defined as

\[\begin{split}\hat{Z}_\alpha & = T \times z \\ \hat{Z}_t & = \frac{\hat{\sigma}_u}{\hat{\omega}^2} \times \sqrt{T} z \\ z & = (\hat{\alpha} - 1) - \hat{\omega}^2_1 / \hat{\sigma}^2_u\end{split}\]

where \(\hat{\sigma}^2_u=T^{-1}\sum_{t=2}^T \hat{u}_t^2\), \(\hat{\omega}^2_1\) is an estimate of the one-sided strict autocovariance, and \(\hat{\omega}^2\) is an estimate of the long-run variance of the process.

The \(\hat{P}_u\) variance-ratio statistic is defined as

\[\hat{P}_u = \frac{\hat{\omega}_{11\cdot2}}{\tilde{\sigma}^2_u}\]

where \(\tilde{\sigma}^2_u=T^{-1}\sum_{t=1}^T \hat{u}_t^2\) and

\[\hat{\omega}_{11\cdot 2} = \hat{\omega}_{11} - \hat{\omega}'_{21} \hat{\Omega}_{22}^{-1} \hat{\omega}_{21}\]

and

\[\begin{split}\hat{\Omega}=\left[\begin{array}{cc} \hat{\omega}_{11} & \hat{\omega}'_{21}\\ \hat{\omega}_{21} & \hat{\Omega}_{22} \end{array}\right]\end{split}\]

is an estimate of the long-run covariance of \(\xi_t\), the residuals from an VAR(1) on \(z_t=[y_t,z_t]\) that includes and trends included in the test.

\[z_t = \Phi z_{t-1} + \xi_\tau\]

The final test statistic is defined

\[\hat{P}_z = T \times \mathrm{tr}(\hat{\Omega} M_{zz}^{-1})\]

where \(M_{zz} = \sum_{t=1}^T \tilde{z}'_t \tilde{z}_t\), \(\tilde{z}_t\) is the vector of data \(z_t=[y_t,x_t]\) detrended using any trend terms included in the test, \(\tilde{z}_t = z_t - d_t \hat{\kappa}\) and \(\hat{\Omega}\) is defined above.

The specification of the \(\hat{P}_z\) test statistic when trend is “n” differs from the expression in [1]. We recenter \(z_t\) by subtracting the first observation, so that \(\tilde{z}_t = z_t - z_1\). This is needed to ensure that the initial value does not affect the distribution under the null. When the trend is anything other than “n”, this set is not needed and the test statistics is identical whether the first observation is subtracted or not.

References