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Testing the Null of Co-integration in the Presence of Variance Breaks

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  • Giuseppe Cavaliere
  • A. M. Robert Taylor

Abstract

We show that changes in the innovation covariance matrix of a vector of series can generate spurious rejections of the null hypothesis of co-integration when applying standard residual-based co-integration tests. A bootstrap solution to the inference problem is suggested which is shown to perform well in practice, redressing the size problems associated with the standard test but not losing power relative to the standard test under the alternative. Copyright 2006 The Authors Journal compilation 2006 Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Time Series Analysis.

Volume (Year): 27 (2006)
Issue (Month): 4 (07)
Pages: 613-636

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Handle: RePEc:bla:jtsera:v:27:y:2006:i:4:p:613-636

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Cited by:
  1. Giuseppe Cavaliere & Anders Rahbek & A. M. Robert Taylor, 2007. "Testing for co-integration in vector autoregressions with non-stationary volatility," Discussion Papers 07/02, University of Nottingham, Granger Centre for Time Series Econometrics.
  2. Kourogenis, Nikolaos & Pittis, Nikitas, 2008. "Cointegration, variance shifts and the limiting distribution of the OLS estimator," Economics Letters, Elsevier, vol. 99(1), pages 103-106, April.

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