Testing for Structural Breaks
AbstractThe purpose of this paper is to investigate the tests of Hansen (1991) to detect structural breaks in cointegrated relations using Monte Carlo methods. The evaluation takes place within the linear quadratic model. The evidence for a single regressor suggests that the test have proper size and that the power is good provided the cost of adjustment is low. In addition to the tests of Hansen, we consider the sensitivity of the augmented Dicky-Fuller (ADF) teest for cointegration in the presence of a structural break. Our Monte Carlo experiments show that the ADF test suffers a substantial loss of power (a failure to reject the null of no cointegration). As a practical example we consider the stability of the long-run coefficients in annual U.S. money demand.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 827.
Length: 38 pages
Date of creation: Jul 1991
Date of revision:
linear quadratic; cointegration; structural breaks;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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