(Stata13): How to Perform Johansen Cointegration Test  

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@@CrunchEconometrix currently in UK but i live in Singapore

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Drop one of the collinear variables.

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Hi Kezia, thanks for the encouraging feedback. Deeply appreciated ☺️ Not at all. Kindly watch my video on panel ARDL...well explained to guide you. Thanks.

Hi Shuai, thanks for the encouraging words and feedback on my videos. Deeply appreciated! I showed the long-run equation in this video. You may need to watch it again. Thanks.

Hi Ibrahim, I explained the hypothesis being tested in the video. Kindly watch again. Thanks.

Hi Chai, I showed that in my VECM videos. Can't recall which. So, you may need my VECM clips. Thanks.

Thanks, Alexandre for the encouraging feedback...appreciated! Please browse my Channel for videos on BOUNDS COINTEGRATION.

Hi Lorena, thanks for the positive feedback. Deeply appreciated. In case of structural break(s), several tests can be applied: Zivot-Andrew, Gregory-Hansen etc. The fundamentals of these tests differ. So, you may have to read up to know which is applicable to your work. However, you can watch my videos on Chow Test and Gregory-Hansen. You'll find them very helpful. ...may I know from where (location) you are reaching me?

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Thanks, AB Medi, for your encouraging feedback. Deeply appreciated. PPT slides are not available. Due to abuse and unethical conduct, Stata dofiles and some datasets used in my videos are no longer free but available on my website upon payment. Here's the link cruncheconometrix.com/view/datashop.php

Yes, but give a reason in your work as to why you are changing it.

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@@CrunchEconometrix i am from Lagos University teaching hospital.

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Toba, I didn't interpret them because they are not so important. If still interested, kindly seek other online resources. Thanks.

Hi Asante, unfortunately I have no idea how it is performed. You may search other YT videos.

@@CrunchEconometrix Thank you very much Madame.

Hi Arrianne, thanks for the encouraging feedback. Deeply appreciated! Yes, you can report the pvalues.

@@CrunchEconometrix Thank you for your reply. Do you have a video tutorial for that? I found some online resources but using E-views and not Stata.

Arrianne, Stata does not report pvalues. Sorry for the mix-up. Make do with the stats provided. That's all you need.

@@CrunchEconometrix Thank you for the clarification. I really appreciate it.

Watch my video on Bounds cointegration test.

Hi Mimie, JCT is NOT applicable for panel data study. Kindly watch my videos on panel ARDL. Thanks.

Hi Muskan, either can be used for forecasting.

Thank you so much for your reply.

I have one more doubt regarding johnsen cointegration test as per AIC and HQ criteria lag 4 is selected and as per SC criteria lag 1 is selected and if i perform Johansen test using K=2 it would recommend me to go for VAR(1) and as per K=4 it would recommend some kind pf cointegration among variable and then use VECM. Can you please help me out with this problem?

Can i select the VAR model with 1 lag as per SIC criteria and go ahead with my problem of forecasting?

I explained the rule of thumb for selecting the appropriate information criteria. Use the one with the lowest statistic.

Hi Yoni, you will agree with me that not everything can be put on the video. The idea is to spur the student to also go out and fish for more information. I also mentioned that you have the prerogative to use either the Trace or Max-Eigen statistic after resorting to their underlying assumptions. Thanks for watching my videos, deeply appreciated.

@@CrunchEconometrix Hi, I really appreciate your endeavor. But I feel that the above question (as raised by Yoni Bork) need to be addressed. These are the most critical issue and direct answers are difficult to find. Otherwise, researchers might be misguided. God bless you.

@@raihansiddika8463 It is also advisable for you to to seek other sources for clearer understanding. My earlier comments stand.

You can use t-stats instead.

Hi Peshala, this clip is about the JCT. So, kindly watch my video on the Bounds test again. Well explained.

@@CrunchEconometrix ok thank you madam..

Click on the error code on guide to solving the problem.

Hi Lysiane, I can't really tell what the issue is. Perhaps, you have some missing observations?

Hi Enuma, thanks for watching my videos...deeply appreciated. What do you imply by "specific model"?

Like with the VAR method you gave an example of a VAR model with three variables. I was wondering you could please proffer one for the Johansen technique?

@@enu6957 But you just watched this video on JCT. Or s there something I'm not understanding from your query?

Eddy, I'm trying to understand your query. So, if you think the log transformation as derived from Stata is wrong, why not use your data?

@@CrunchEconometrix why the bile? not a critic but a query too, for instance, I picked just one value of gdp in your data, log 1800. 5 is 3.255, but in your data is 7.963. kindly please make me understand because I follow your videos

@Eddy Mwangi Please take no offence. Honestly, I try to understand why some of you whip emotions on a harmless statement. I said if you think the GDP transformation is wrong, why not use your data?

@@CrunchEconometrix Great, now got it. Thanks fellow Statistician. Anyway, I can say, now I know how to use STATA because of your videos. Keep up the good work

Hi Selin, thanks for the positive feedback. Deeply appreciated! Not sure how dummy variables fit into VAR and VECM. You may need to check other online resources. Kind regards.

Johansen test is on cointegration among the variables in the model.

Hi Dipen, by taking the first and second difference of a variable. For instance to generate these for "inflation", the Stata syntax is: gen dinfl=d.infl gen d2infl=d2.infl

@@CrunchEconometrix I see. Thank you! Works perfect.👍

@@dipenmodi1807 I don't know what you mean by "find 50 years data that satisfies OLS". Just apply all the rules (stationarity, lag selection) guiding time series analysis and estimate your model. That's all.

Hi MacMillan, thanks for the positive feedback. Deeply appreciated! Check through the Playlists for "Cointegration Series I(0)". Please may I know from where (location) you are reaching me?

From China

Hi Joachim, thanks for the encouraging words and feedback. Deeply appreciated! If you have too many missing observations, I will advise you change the variables to closer proxies.

Hi Theon, no you cannot use the JCT in that situation. The Bounds cointegration test is the most applicable. Kindly watch my videos on the procedure. May I know from where (location) you are reaching me? Thanks.

@@CrunchEconometrix Thanks ! I am studying in China !

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@@CrunchEconometrix You're welcome!

Hi Banele, did you watch my video on Optimal Lag Selection?

Hi Shanika, unless you imply something else, that's what I explained in this video.

Hi, I mean the cointegration vector like (1, -1). For that, I guess it is necessary to run the VECM. Unlike stata, in eviews, once we test the Johenson cointegration we can observe the cointe vector. Thanks

Sabreen, I mentioned that at the beginning of this clip. Kindly search for it within my Channel. Thanks.

Hi Fry, know that JCT is to VECM as Bounds test is to ECM.

In that case, you perform the Bounds cointegration test.

@@CrunchEconometrix Thanks a lot. I have also very important question concerning the data and suitability of ARDL model to use for my data. The fact is that I have quarterly data for 12 commercial banks 9 variables for each of these banks for 10 years. When I create a pool of data in one data set STATA considers them all as if they are the data for single bank. Also another problem with data is that the data for one commercial banks for 10 years with 9 variables end and then the next bank data starts and so on. Can we use ARDL model in this case considering that I have 2 dependent variables and 7 independent variables which can not be a dependent variable according to my research question. As I remember from your example, each variable can be dependent as well as independent exploratory variable. I thank you very much in advance. You are saving so much time and efforts for me

You need to know the differences between a time series data and a panel data. From your explanation, your data structure is the latter. Watch my panel data videos for better understanding.

@@CrunchEconometrix Thank you . I will definitely watch them and return with questions)

Professor, I have a question which I couldn't solve. I have the quarterly data given as 01.07.09; 01.10.09; 01.01.10 so on. meaning that they are given for the first date of the next quarter. For example ROA for 01.07.09 is the ROA for the second quarter of the year of 2009. How can I convert them into 2009q2, 2009q3, 2009q4 etc in stata so that stata would accept each of these observations as quareterly data. When I show them as quarterly data in stata it shows them as 6479q4, 6502q4, 6525q4 so on for the data which normally belongs to 2009q2, 2009q3, 2009q4 so on. For some banks the same for example 6502q4 was given twice for two different observations which normally belong to two different quarters. Sorry for such a long explanation. I hope it is understandable

Hi Himadri, kindly watch the videos on the Bounds test. Please may I know from where (location) you are reaching me?

@@CrunchEconometrix Thanks! I am watching your well organized and excellently explained videos from USA Tennessee. :)

@@himadri6096 Wow! Awesome! Thanks again for the encouraging words. Please stay safe 🙏

Muhammad Ahmad Yes, all variables must be stationary at 1st difference b4 performing JCT. But when performing the test, u can use either the raw or log forms but not the 1st difference. Just the way I performed it. You can watch my video on how to perform the test.

thanks ma'am

Sean, you are mixing this up. For one, this video is about JCT which is not correlated with ARDL modeling. Secondly, you don't obtain I(0)after taking 1st difference. Thirdly, I've simplified ARDL techniques, watch them. Suggestions: video tutorials are no substitutes for reading, you MUST read about the fundamentals from basic econometric textbooks to get the full import of what you are doing.

@@CrunchEconometrix my apologies, i realised i confused the 2 together. Thanks for your help! Your channel is great!

@@seanh19954 No worries Sean. Glad to hear that you find my videos useful. Gracias 🙏

Hi Arturos, what do you imply by "cointegration in levels"?

@@CrunchEconometrix umm the variables like they are ummm like years of education and pib per capital(this is just and example , not the variables I'm using), when I do the test with the variables in differences I don't get cointegration anymore, I'm doing my econometrics homework at my University in Peru

@@arturox1997 Your query is not understandable. The guidelines to performing JCT are quite explicit. Watch the videos on cointegration AGAIN, jot down notes and follow my guide.