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Abstract

This paper addresses the testing for cointegrating vectors and the estimationof cointegrating relations using Partial Least Squares. Together with Harris(1997) and Bossaerts (1988), the PLS approach relies on a method ofmultivariate statistics and thus does not require identifying restrictions onthe cointegrating vectors or of a full specification of the short-run dynamicsof the process. The PLS estimator for the cointegrating vectors is found to besuper consistent and robust to heavy-tailed innovations. A test is provided forthe rank of cointegration which is assessed by means of Monte Carlosimulation. A brief application to Mexican inflation data is also provided.