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Testing for Stochastic Trends in Series with Structural Breaks

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Author Info
Fabio Busetti () (Banca d'Italia)

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Abstract

This paper considers the problem of testing for the presence of stochastic trends in multivariate time series with structural breaks. The breakpoints are assumed to be known. The testing framework is the multivariate Locally Best Invariant test and the common trend test of Nyblom and Harvey (2000). The asymptotic distributions of the test statistics are derived under a general specification of the deterministic component, which allows for structural breaks as a particular case. Asymptotic critical values are provided for the case of a single breakpoint. A modified statistic is then proposed, the asymptotic distribution of which is independent of the breakpoint location and belongs to the Cramér-von Mises family. This modification is particularly advantageous in the case of multiple breakpoints. It is also shown that the asymptotic distributions of the test statistics are unchanged when seasonal dummy variables and/or weakly dependent exogenous regressors are included. Finally, as an example, the tests are applied to UK macroeconomic data and to data on road casualties in Great Britain.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td00/td385_00/td385/tema_385_00.pdf
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Publisher Info
Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 385.

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Date of creation: Oct 2000
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Handle: RePEc:bdi:wptemi:td_385_00

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Related research
Keywords: cointegration; common trends; Cramér-von Mises distribution; locally best invariant test; structural breaks;

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Luca Dedola & Eugenio Gaiotti & Luca Silipo, 2004. "Money Demand in theEuroArea: Do National Differences Matter?," Macroeconomics 0404019, EconWPA, revised 24 Apr 2004. [Downloadable!]
    Other versions:
  2. Emilia Bonaccorsi di Patti & Giorgio Gobbi, 2001. "The Effects of Bank Consolidation and Market Entry on Small Business Lending," Temi di discussione (Economic working papers) 404, Bank of Italy, Economic Research Department. [Downloadable!]
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This page was last updated on 2009-12-4.

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