Abstract :
A simple specification test based on fully modified residuals and the cumulative
sum ~CUSUM! test for cointegration of Xiao and Phillips ~2002, Journal of Econometrics,
108, 43– 61! are considered as means of testing for functional form in
long-run cointegrating relations+ It is shown that both tests are consistent under
functional form misspecification and lack of cointegration+ A simulation experiment
is carried out to assess the properties of the tests in finite samples+ The
Dickey–Fuller test is also considered+ The simulation results reveal that the first
two tests perform reasonably well+ However, the Dickey–Fuller test performs
poorly under functional form misspecification+
