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Inference On Segmented Cointegration

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  • Kim, Jae-Young

Abstract

A cointegration relation is often interpreted as a long-run equilibrium relation whereas short-run deviations are allowed to a certain extent. In practice, however, real data often fail to confirm cointegration for a well understood economic relation. This paper proposes that in many cases failure of confirming cointegration is due to nonstationary deviations in a relatively small portion of the data period (“short-run”) whereas a cointegration relation prevails in the other periods. We call such a situation segmented cointegration. We study in this paper how to detect segmented cointegration and how to identify the period of short-run deviations.I thank Pentti Saikkonen and three anonymous referees for helpful comments. I am deeply indebted to Peter Phillips for encouragement, discussion, and helpful comments on this work. The research of this paper is supported by the Research Grants Council of Hong Kong (grant HKUST6178/98H) and FRAP B of SUNY-Albany (account 320-9709W).

Suggested Citation

  • Kim, Jae-Young, 2003. "Inference On Segmented Cointegration," Econometric Theory, Cambridge University Press, vol. 19(4), pages 620-639, August.
    • Handle: RePEc:cup:etheor:v:19:y:2003:i:04:p:620-639_19
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    Cited by:

    1. Davidson, James & Monticini, Andrea, 2010. "Tests for cointegration with structural breaks based on subsamples," Computational Statistics & Data Analysis, Elsevier, vol. 54(11), pages 2498-2511, November.
    2. Martins, Luis F. & Gabriel, Vasco J., 2014. "Modelling long run comovements in equity markets: A flexible approach," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 288-295.
    3. Park, Cheolbeom, 2010. "When does the dividend-price ratio predict stock returns?," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 81-101, January.
    4. Marcos Sanso-Navarro & María Vera-Cabello, 2020. "Income Inequality and Persistence Changes," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(2), pages 495-511, November.
    5. Luca Cattivelli & Federico Antonioli, 2023. "When cointegration is interrupted: Price transmission analysis in the Italian dairy‐feed industry," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 744-761, July.
    6. Pulapre Balakrishnan & Mausumi Das & M. Parameswaran, 2015. "The Mechanism of Long-Term Growth in India," Working Papers id:6414, eSocialSciences.
    7. Balakrishnan, Pulapre & Das, Mausumi & Parameswaran, M., 2017. "The internal dynamic of Indian economic growth," Journal of Asian Economics, Elsevier, vol. 50(C), pages 46-61.
    8. Luis F. Martins & Paulo M. M. Rodrigues, 2022. "Tests for segmented cointegration: an application to US governments budgets," Empirical Economics, Springer, vol. 63(2), pages 567-600, August.

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