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Testing for Stochastic Trends in Series with Structural Breaks

Listed author(s):
  • Fabio Busetti

    ()

    (Banca d'Italia)

This paper considers the problem of testing for the presence of stochastic trends in multivariate time series with structural breaks. The breakpoints are assumed to be known. The testing framework is the multivariate Locally Best Invariant test and the common trend test of Nyblom and Harvey (2000). The asymptotic distributions of the test statistics are derived under a general specification of the deterministic component, which allows for structural breaks as a particular case. Asymptotic critical values are provided for the case of a single breakpoint. A modified statistic is then proposed, the asymptotic distribution of which is independent of the breakpoint location and belongs to the Cram�r-von Mises family. This modification is particularly advantageous in the case of multiple breakpoints. It is also shown that the asymptotic distributions of the test statistics are unchanged when seasonal dummy variables and/or weakly dependent exogenous regressors are included. Finally, as an example, the tests are applied to UK macroeconomic data and to data on road casualties in Great Britain.

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File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2000/2000-0385/tema_385_00.pdf
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Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 385.

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Date of creation: Oct 2000
Handle: RePEc:bdi:wptemi:td_385_00
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