Given a set of non-stationary variables, the lag order used in the Johansen test for cointegration is derived from:
a) Running a VAR in levels to determine the lag order.
b) Running a VAR in differences to determine the lag order.
c) Running a VAR in levels and subtracting one from the level determined.
d) Lag order does not matter.
Harish Nachnani
I would start of with lag of order 1 (i.e. choice b) . Then run the ADF test on the residual to determine if the residual is stationary. If that fails go to lag 2.
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Amin Tavakkolnia
In Johansen method cointegration equations are determined via a VAR model and VAR only works on stationary data. So model runs on difference of data and for different lags to find reliable answers.
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