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Testing for breaks in the cointegrating relationship: On the stability of government bond markets' equilibrium

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  • Rodrigues, Paulo M.M.
  • Sibbertsen, Philipp
  • Voges, Michelle

Abstract

In this paper, test procedures for no fractional cointegration against possible breaks in the persistence structure of a fractional cointegrating relationship are introduced. The tests proposed are based on the supremum of the Hassler and Breitung (2006) test statistic for no cointegration over possible breakpoints in the long-run equilibrium. We show that the new tests correctly standardized converge to the supremum of a chisquared distribution, and that this convergence is uniform. An in-depth Monte Carlo analysis provides results on the finite sample performance of our tests. We then use the new procedures to investigate whether there was a dissolution of fractional cointegrating relationships between benchmark government bonds of ten EMU countries (Spain, Italy, Portugal, Ireland, Greece, Belgium, Austria, Finland, the Netherlands and France) and Germany with the beginning of the European debt crisis.

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  • Rodrigues, Paulo M.M. & Sibbertsen, Philipp & Voges, Michelle, 2019. "Testing for breaks in the cointegrating relationship: On the stability of government bond markets' equilibrium," Hannover Economic Papers (HEP) dp-656, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-656
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    Cited by:

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    More about this item

    Keywords

    Fractional cointegration; Persistence breaks; Hassler-Breitung test; Changing Long-run equilibrium;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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