It should be obvious that there is a relationship between the market price of black pepper and the market price of white pepper.



tseries::adf.test(PepperPrice[,'black']) # Non-stationary
tseries::adf.test(PepperPrice[,'white']) # Non-stationary

coint_lm <- tslm(PepperPrice[,'black'] ~ PepperPrice[,'white'])

The PO Test reveals a co-integrated relationship between the two time series.

tseries::po.test(coint_lm$model) # NOT spurious

However, when I run the KPSS test with drift and trend, the test thinks that there is a unit root in the residuals.

tseries::kpss.test(coint_lm$residuals, null="Trend") # SPURIOUS!!!!

Is the null hypothesis of no unit root being rejected due to large sample size? Or there is something going on with the null='Trend' argument?

ADF and PP tests behave fine.

tseries::adf.test(coint_lm$residuals) # NOT spurious
tseries::pp.test(coint_lm$residuals) # NOT spurious

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