My thanks to a colleague for bringing to my attention a recent discussion paper with the provocative title, "Why Most Published Results on Unit Root and Cointegration are False".
As you can imagine, I couldn't resist it!
After a quick read (and a couple of deep breaths), my first reaction was to break one of my self-imposed blogging rules, and pull the paper apart at the seams.
The trouble is, the paper is so outrageous in so many ways, that I just wasn't up to it. Instead, I'm going to assign it to students in my Time-Series Econometrics course to critique. They have more patience than I do!
The authors make sweeping claims that certain theoretical results are undermined by one poorly implemented piece of (their own) empiricism.
They provide no serious evidence that I could find to support the bold claim made in the title of their paper.
We are left with a concluding section containing remarks such as:
"In summary, three analogies between cointegration analysis and a sandcastle may be appropriate. First, a sandcastle may be built on sand, so it falls down because the foundation is not solid. Second, a sandcastle may be badly built. Third, a sandcastle built on seashore with a bad design may stay up but will not withstand the ebb and flow of the tides. The cointegration analysis, like a sandcastle, collapses on all three counts. In several planned research publications, we will report the criticism of research outcomes (results) and the methods employed to obtain such results. Below we provide one example why a research finding using the methodology of cointegration analysis to be false." (pp.11-12)
"In the name of science, cointegration analysis has become a tool to justify falsehood -- something that few people believe to be true but is false. We recommend that except for a pedagogical review of a policy failure of historical magnitude, the method of cointegration analysis not be used in any public policy analysis." (p.14)The most positive thing I can say is: I can't wait for the promised follow-up papers!