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Testing the Null of Cointegration with Structural Breaks

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  • Josep Lluís Carrion-i-Silvestre

    ()

  • Andreu Sansó

    ()

Abstract

In this paper we propose an LM-Type statistic to test the null hypothesis of cointegration allowing for the possibility of a structural break, in both the deterministic and the cointegration vector. Our proposal focuses on the presence of endogenous regressors and analyses which estimation method provides better results. The test has been designed to be used as a complement to the usual non-cointegration tests in order to obtain stronger evidence of cointegration. We consider the cases of known and unknown break date. In the latter case, we show that minimizing the SSR results in a super-consistent estimator of the break fraction. Finally, the behaviour of the tests is studied through Monte Carlo experiments.

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Bibliographic Info

Paper provided by Universitat de les Illes Balears, Departament d'Economía Aplicada in its series DEA Working Papers with number 10.

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Date of creation: Nov 2005
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Handle: RePEc:ubi:deawps:10

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Keywords: cointegration; strcutural breaks; KPSS test.;

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