This paper presents Monte Carlo simulations for the Johansen cointegration test
which indicate that the critical values applied in a number of econometrics software
packages are inappropriate. This is due to a confusion in the specification of the
deterministic terms included in the VECM between the cases considered by
Osterwald-Lenum (1992) and Pesaran, Shin and Smith (2000). The result is a
tendency to reject the null of no cointegration too often. However, a simple
adjustment of the critical values is enough to deal with the problem.
This is a working paper - it is also available at: http://ideas.repec.org/p/lbo/lbowps/2007_12.html.