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Multicointegration, polynomial cointegration and I(2) cointegration with structural breaks. An application to the sustainability of the US external deficit

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Author Info

  • Vanessa Berenguer-Rico

    ()
    (Faculty of Economics, Juan Carlos III.)

  • Josep Lluís Carrion-i-Silvestre

    ()
    (Faculty of Economics, University of Barcelona)

Abstract

In this paper we model the multicointegration relation, allowing for one structural break. Since multicointegration is a particular case of polynomial or I(2) cointegration, our proposal can also be applied in these cases. The paper proposes the use of a residualbased Dickey-Fuller class of statistic that accounts for one known or unknown structural break. Finite sample performance of the proposed statistic is investigated by using Monte Carlo simulations, which reveals that the statistic shows good properties in terms of empirical size and power. We complete the study with an empirical application of the sustainability of the US external deficit. Contrary to existing evidence, the consideration of one structural break leads to conclude in favour of the sustainability of the US external deficit.

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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 200709.

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Length: 35 pages
Date of creation: May 2007
Date of revision: May 2007
Handle: RePEc:ira:wpaper:200709

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Web page: http://www.ub.edu/irea/
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Related research

Keywords: I(2) processes; multicointegration; polynomial cointegration; structural break; sustainability of external deficit.;

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