Implementing Residual-Based KPSS Tests for Cointegration with Data Subject to Temporal Aggregation and Mixed Sampling Frequencies

Working Paper Number: 
WP 15-04

We show how temporal aggregation affects the size and power of the DOLS residual-based KPSS test of the null of cointegration. Size is effectively controlled by setting the minimum number of leads equal to one -- as opposed to zero -- when selecting the lag/lead order of the DOLS regression, but at a cost to power in finite samples. If high-frequency data for one or more series are available, we show how to effectively utilize the high-frequency data to increase power while controlling size.

JEL Codes: 
C12, C22