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Outliers - robust ECM cointegration tests based on the trend components

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  • Miguel Arranz

    ()

  • Alvaro Escribano

    ()

Abstract

The main goal of this paper is to analyze the behavior of the ECM non-cointegration test when there are additive outliers in the time series under different co-breaking situations. We show that the critical values of the usual ECM test are not robust to the presence of transitory shocks and we suggest a procedure based on signal extraction to bypass this problem. These procedure renders ECM tests with a left tail of distribution under the null that is robust to the presence of additive outliers in the series. The small sample critical values and the empirical power of the test are analyzed by Monte Carlo simulations for several low frequency filters. The proposed empirical methodology is applied to the CPI-based US/Finland real exchange rate. Copyright Springer-Verlag Berlin/Heidelberg 2004

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File URL: http://hdl.handle.net/10.1007/s10108-004-0089-z
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Bibliographic Info

Article provided by Springer in its journal Spanish Economic Review.

Volume (Year): 6 (2004)
Issue (Month): 4 (December)
Pages: 243-266

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Handle: RePEc:spr:specre:v:6:y:2004:i:4:p:243-266

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Related research

Keywords: Outliers; transitory co-breaks; cointegration testing; trend-component error correction models;

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Cited by:
  1. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2006. "Deregulated Wholesale Electricity Prices in Europe," Working Papers 20061001, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica.
  2. Bruno Bosco & Lucia Parisio & Matteo Pelagatti & Fabio Baldi, 2010. "Long-run relations in european electricity prices," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 805-832.
  3. Matteo Pelagatti & Bruno Bosco & Lucia Parisio & Fabio Baldi, 2007. "A Robust Multivariate Long Run Analysis of European Electricity Prices," Working Papers 2007.103, Fondazione Eni Enrico Mattei.

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