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A Recursive Monte Carlo Study of Structural-Break Sensitivity of Adjustment Coefficients in Cointegrated VAR Systems

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  • Takamitsu Kurita

    (Fukuoka University)

Abstract

This paper studies the sensitivity of adjustment coefficients to various structural breaks in a cointegrated vector autoregressive system. A Monte Carlo simulation study is conducted in a recursive manner to examine fluctuations of finite-sample estimates of the coefficients. The study reveals the wide-ranging influences of breaks on the estimates, which can give rise to inference for spurious time-varying adjustment coefficients, although the underlying true coefficients are stable and time-invariant. It is thus advisable to be cautious about seemingly time-varying adjustment coefficients when analyzing time series data subject to structural breaks.

Suggested Citation

  • Takamitsu Kurita, 2019. "A Recursive Monte Carlo Study of Structural-Break Sensitivity of Adjustment Coefficients in Cointegrated VAR Systems," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(2), pages 251-270, June.
    • Handle: RePEc:spr:jqecon:v:17:y:2019:i:2:d:10.1007_s40953-019-00162-2
    DOI: 10.1007/s40953-019-00162-2
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    Keywords

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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