Testing for Cointegration: Standard and Non-Standard Conditions

Impact of Economic Factors on Life and Non- Life Insurance Development in Albania – A VECM Analysis

“…Testing is needed to determine the integration level to avoid spurious regression. In order to make the series stationary, we have differentiated it [29].…”

“…Before performing the Johansen cointegration test it is critical to determine the lag order. Too many lags will affect the small sample performance of the test, while too few lags will imply that the model is not well-specified [29]. There are several criteria to select the optimal lag order.…”

“…The cointegration test was initially established by the work of Engle and Granger [21], and then developed by Johansen [33] to more practical estimation methods. Although different approaches have been developed through the years, Johansen methodology dominates empirical work [29]. Johansen cointegration tests the number of cointegration relations in a vector-autoregressive representation.…”