In this short tutorial in Eviews, we would explain the basic steps of conduting Phillips-Ouliaris Cointegration Test. To run Phillips-Ouliaris Cointegration Test in Eviews, we will need to ender the data as dated frequency and panel structure. Theoretically, the Phillips-Ouliaris Cointegration Test can found well explained in P. C. B. Phillips and S. Ouliaris (1990): Asymptotic Properties of Residual Based Tests for Cointegration. Econometrica 58, 165–193 which can be downloaded here.
Phillips-Ouliaris Cointegration Test
To run Phillips-Ouliaris Cointegration Test in Eviews, open Eviews and follow the steps below:
- Before running FMOLS or Cointegration tests, one can test for panel unit root for each of the variables in the system. The Unit roots assumptions for the cointegration Test should considered before production of the estimates.
- Open the data as a work file in Eviews and set the frequency according to the time frequency.
- Left Click on the dependent variables, press controll key and left click on other independent variables one by one.
- Now, right click on any of the selected variables and click on Open as Equation
- A new window appears , select the COINTEG as method. The window will change to a new window giving further options. One can select lags and change method from Nonstrationary Estimations Settings/Options.
- Select FMOLS from this and click on the OK button.
- Fully Modified OLS results will be produced.
- Now, click on the View button of the FMOLS button.
- Click on Cointegration tests
- A small window appears, select the Phillips-Ouliaris from the list.
- Click on OK button of the same small button. Phillips-Ouliaris Cointegration Test results appear on the FMOLS screen.
- The Null hypothesis is that the Series are not cointegrated. The test statistic to reject or accept this null hypothesis is based on Za and Ta statistic. If the p-value is less than 0.05 using the 95% level of confidence, we reject the null hypothesis of no cointegration which verifies the series in the system are cointegrated.
The following video tutorial explains the above steps to help replication be more convenient. If you would like to learn more about Applied Econometrics Research using Eviews, check our private and instructor led courses here.