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Structural Breaks in the Cointegrated Vector Autoregressive Model

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  • Peter Reinhard Hansen

    (Brown University)

Abstract

We generalize the cointegrated vector autoregressive model of Johansen (1988, 1991) to allow for structural breaks. We derive the likelihood ratio test for structural breaks occurring at fixed points in time, and show that it is asymptotically chi-squared. Moreover, we show how inference can be made when the null hypothesis is presence of structural breaks. The estimation technique derived for this purpose can be applied to several other generalizations of the standard model, beyond the structural breaks treated here. For example, the new technique can be applied to estimate models with heteroskedasticity. We apply our generalized model to US term structure data, accounting for structural breaks that coincide with the changes in the Fed's policy in September 1979 and October 1982. Contrary to previous findings we cannot reject the long-run implications of the expectations hypothesis.

Suggested Citation

  • Peter Reinhard Hansen, 2000. "Structural Breaks in the Cointegrated Vector Autoregressive Model," Econometric Society World Congress 2000 Contributed Papers 1240, Econometric Society.
  • Handle: RePEc:ecm:wc2000:1240
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    1. Chan, K C, et al, 1992. " An Empirical Comparison of Alternative Models of the Short-Term Interest Rate," Journal of Finance, American Finance Association, vol. 47(3), pages 1209-1227, July.
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    Cited by:

    1. Vasco J. Gabriel & Luis F. Martins, 2000. "The Properties of Cointegration Tests in Models with Structural Change," NIPE Working Papers 1/2000, NIPE - Universidade do Minho.
    2. Philippe Andrade & Catherine Bruneau & Stephane Gregoir, 2000. "Testing for the Cointegration Rank when Some Cointegrating Directions are Shifting," Econometric Society World Congress 2000 Contributed Papers 1605, Econometric Society.
    3. Vasco J. Gabriel & Martin Sola & Zacharias Psaradakis, 2001. "A simple method for testing cointegration subject to regime changes," NIPE Working Papers 15/2001, NIPE - Universidade do Minho.
    4. Hjelm, Göran & Johansson, Martin W, 2002. "Structural Change in Fiscal Policy and The Permanence of Fiscal Contractions - The Case of Denmark and Ireland," Working Papers 2002:11, Lund University, Department of Economics.
    5. Andrade, Philippe & Bruneau, Catherine & Gregoir, Stephane, 2005. "Testing for the cointegration rank when some cointegrating directions are changing," Journal of Econometrics, Elsevier, vol. 124(2), pages 269-310, February.
    6. Vasco J. Gabriel & Martin Sola & Zacharias Psaradakis, 2002. "Residual-based tests for cointegration and multiple regime shifts," NIPE Working Papers 7/2002, NIPE - Universidade do Minho.

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