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Bootstrapping cointegration tests under structural co-breaks: A robust extended ECM test

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  • Miguel Arranz
  • Alvaro Escribano

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Abstract

The aim of the paper is the analysis of ECM bootstrap cointegration tests under structural breaks. Classical ECM tests depend on sorne nuisance parameters, which is an undesirable feature for empirical applications. This problem is overcome by using the bootstrap ECM test, which shows good size and power properties when there are no breaks. In this paper we study the small sample properties of alternative bootstrap ECM tests under different cobreaking situations. ECM test statistics are made robust to partial cobreaking by using extended error correction models or by imposing a common factor restriction.
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Suggested Citation

  • Miguel Arranz & Alvaro Escribano, 2006. "Bootstrapping cointegration tests under structural co-breaks: A robust extended ECM test," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 15(1), pages 179-208, June.
  • Handle: RePEc:spr:testjl:v:15:y:2006:i:1:p:179-208 DOI: 10.1007/BF02595424
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    References listed on IDEAS

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    1. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-348, August.
    2. Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996. "Cointegration tests in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 70(1), pages 187-220, January.
    3. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    4. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October.
    5. Mantalos, Panagiotis & Shukur, Ghazi, 1998. "Size and Power of the Error Correction Model Cointegration Test. A Bootstrap Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 249-255, May.
    6. Eric Zivot, 1996. "The Power of Single Equation Tests for Cointegration when the Cointegrating Vector is Prespecified," Econometrics 9612001, EconWPA.
    7. Arranz, Miguel A & Escribano, Alvaro, 2000. " Cointegration Testing under Structural Breaks: A Robust Extended Error Correction Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 23-52, February.
    8. Michael P. Clements & David F. Hendry, 2001. "Forecasting Non-Stationary Economic Time Series," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262531895, January.
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