Detecting Sparse Cointegration

ABSTRACT We propose a two‐step procedure for detecting sparse cointegration in high‐dimensional single‐equation models. First, we employ the adaptive lasso to identify the subset of integrated covariates driving the long‐run equilibrium relationship. Second, we adopt an information‐theoretic criterion to distinguish between stationarity and nonstationarity in the resulting residuals, avoiding reliance on asymptotic distributions. A key theoretical contribution is demonstrating that this residual‐based decision rule remains consistent regardless of the internal cointegration structure among the right‐hand side predictors themselves. Monte Carlo experiments confirm the procedure's robust finite‐sample performance under endogeneity, serial correlation, and rank deficiency in the regressor matrix.

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Publication Details

Journal
Oxford Bulletin of Economics and Statistics
Published
2026-05-22
DOI
https://doi.org/10.1111/obes.70085
Primary Topic
Monetary Policy and Economic Impact
Type
preprint
Field-Weighted Citation Impact
0.00

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preprint

Detecting Sparse Cointegration

Jean‐Yves Pitarakis, Jesús Gonzalo
Oxford Bulletin of Economics and Statistics
Monetary Policy and Economic Impact
preprint

Detecting Sparse Cointegration

Jean‐Yves Pitarakis, Jesús Gonzalo
preprint en

Abstract

ABSTRACT We propose a two‐step procedure for detecting sparse cointegration in high‐dimensional single‐equation models. First, we employ the adaptive lasso to identify the subset of integrated covariates driving the long‐run equilibrium relationship. Second, we adopt an information‐theoretic criterion to distinguish between stationarity and nonstationarity in the resulting residuals, avoiding reliance on asymptotic distributions. A key theoretical contribution is demonstrating that this residual‐based decision rule remains consistent regardless of the internal cointegration structure among the right‐hand side predictors themselves. Monte Carlo experiments confirm the procedure's robust finite‐sample performance under endogeneity, serial correlation, and rank deficiency in the regressor matrix.

Oxford Bulletin of Economics and Statistics
University of Southampton (GB), Universidad Carlos III de Madrid (ES)
Economic and Social Research Council, Agencia Estatal de Investigación
Openalex Percentile: Top 100%
Monetary Policy and Economic Impact
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