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The Properties of Cointegration Tests in Models with Structural Change

Author

Listed:
  • Vasco J. Gabriel

    (Universidade do Minho - NIPE
    Birkbeck College, University of London)

  • Luis F. Martins

    (Instituto Superior de Ciências do Trabalho e da Empresa, UNIDE)

Abstract

In this paper we examine, by means of Monte Carlo simulation, the properties of several cointegration tests when long run parameters are subject to structural changes. We allow for different types of stochastic and deterministic regime shifts, more specifically, changes governed by Markov chains, martingale parameter variation, sudden multiple breaks and gradual changes. Our Monte Carlo analysis reveals that tests with cointegration as the null hypothesis perform badly, while tests with the null of no cointegration retain much of their usefulness in this context.

Suggested Citation

  • Vasco J. Gabriel & Luis F. Martins, 2000. "The Properties of Cointegration Tests in Models with Structural Change," NIPE Working Papers 1/2000, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:1/2000
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    File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2000/NIPE_WP_1_2000.PDF
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    References listed on IDEAS

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    More about this item

    Keywords

    Structural change; Cointegration; Tests; Monte Carlo;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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