TESTING FOR COINTEGRATION IN CANADIAN LABOUR SUPPLY DATA Available to Purchase

In this paper, the neoclassical theory of labour supply and a neo‐Keynesian theory of labour supply are investigated and the equilibrium prediction of the two theories are tested using cointegration methods. The Granger and Engle two step procedure is applied to quarterly Canadian labour supply data. This approach suggests that the existence of an equilibrium relationship in the data should coincide with the existence of a cointegrating vector for the individually non‐stationary time series. No such vector can be found for the neoclassical model but such a vector can be found for the neo‐Keynesian model.