Canonical Cointegrating Regressions

A new procedure for statistical inference in cointegrating regressions is developed. The author introduces canonical cointegrating regressions (regressions formulated with the transformed data). The required transformations involve simple adjustments of the integrated processes using stationary components in cointegrating models. Canonical cointegrating regressions, therefore, represent the same cointegrating relationships as the original models. They are, however, constructed in such a way that the usual least squares procedure yields asymptotically efficient estimators and chi-square tests. The methodology presented here is applicable to a very wide class of cointegrating models, including models with deterministic and singular, as well as stochastic and regular, cointegrations. Copyright 1992 by The Econometric Society.