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Quasi-likelihood ratio tests for cointegration, cobreaking, and cotrending

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  • Josep Lluís Carrion-i-Silvestre
  • Dukpa Kim

Abstract

We consider a set of variables with two types of nonstationary features, stochastic trends and broken linear trends. We develop tests that can determine whether there is a linear combination of these variables under which the nonstationary features can be canceled out. The first test can determine whether stochastic trends can be eliminated and thus whether cointegration holds, regardless of whether structural breaks in linear trends are eliminated. The second test can determine whether both stochastic trends and breaks in linear trends are simultaneously removed and thus whether cointegration and cobreaking simultaneously hold. The third test can determine whether not only breaks in linear trends but also linear trends themselves are eliminated along with stochastic trends and thus whether both cointegration and cotrending hold.

Suggested Citation

  • Josep Lluís Carrion-i-Silvestre & Dukpa Kim, 2019. "Quasi-likelihood ratio tests for cointegration, cobreaking, and cotrending," Econometric Reviews, Taylor & Francis Journals, vol. 38(8), pages 881-898, September.
    • Handle: RePEc:taf:emetrv:v:38:y:2019:i:8:p:881-898
    DOI: 10.1080/07474938.2018.1528416
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    Cited by:

    1. Carrion-i-Silvestre, Josep Lluís & Kim, Dukpa, 2021. "Statistical tests of a simple energy balance equation in a synthetic model of cotrending and cointegration," Journal of Econometrics, Elsevier, vol. 224(1), pages 22-38.
    2. Skrobotov, Anton, 2021. "Structural breaks in cointegration models," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 63, pages 117-141.
    3. María Dolores Gadea Rivas & Jesús Gonzalo, 2022. "A tale of three cities: climate heterogeneity," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(1), pages 475-511, May.
    4. Gadea Rivas, Marta Dolores & Gonzalo, Jesús, 2022. "Climate change heterogeneity: a new quantitative approach," UC3M Working papers. Economics 35442, Universidad Carlos III de Madrid. Departamento de Economía.

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