Why Most Published Results on Unit Root and Cointegration are False

Abstract

The method of cointegration analysis for modeling nonstationary economic time series variables has become a dominant paradigm in empirical economic research. Critics argue that a cointegration analysis produces results that are, at best, useless and, at worst, dangerous. In this research, we explain why and how the use of a cointegration analysis in economic research will likely lead to findings and subsequent recommendations for public policy that will be unsound, misleading and potentially harmful. We recommend that, except for pedagogical review of policy failure of a historical magnitude, this method not be used in any analysis that affects public policy.