Residual-based tests for cointegration and multiple regime shifts

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Residual-based tests for cointegration and multiple regime shifts

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Vasco J. Gabriel () (Universidade do Minho)
Martin Sola (Birkbeck College, University of London, Universidad Torcuato Di Tella, Argentina)
Zacharias Psaradakis (Birkbeck College, University of London)

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Abstract

In this paper we examine the properties of several cointegration tests when long run parameters are subject to multiple shifts, resorting to Monte Carlo methods. We assume that the changes in cointegration regimes are governed by a unobserved Markov chain process. This specification has the considerable advantage of allowing for an unspecified number of stochastic breaks, unlike previous works that consider a single, deterministic break. Our Monte Carlo analysis reveals that testing cointegration with the usual procedures is a quite unreliable task, since the performance of the tests is poor for a number of plausible regime shifts parameterizations.

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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 7/2002.

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Date of creation: 2002
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Handle: RePEc:nip:nipewp:7/2002

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

This paper has been announced in the following NEP Reports:

NEP-ECM-2003-10-05 (Econometrics)
NEP-ETS-2003-10-05 (Econometric Time Series)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Vasco J. Gabriel & Martin Sola & Zacharias Psaradakis, 2001. "A simple method for testing cointegration subject to regime changes," NIPE Working Papers 15/2001, NIPE - Universidade do Minho. [Downloadable!]

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