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Break Date Estimation and Cointegration Testing in VAR Processes with Level Shift

Author

Listed:
  • Pentti SAIKKONEN
  • Helmut LUETKEPOHL
  • Carsten TRENKLER

Abstract

In testing for the cointegrating rank of a vector autoregressive (VAR) process it is important to take into account level shifts that have occurred in the sample period. Therefore the properties of estimators of the time period where a shift has taken place are investigated. The possible structural break is modelled as a simple shift in the level of the process. Three alternative estimators for the break date are considered and their asymptotic properties are derived under various assumptions regarding the size of the shift. In particular, properties of the shift date estimator are obtained under the assumption of an increasing or decreasing size of the shift when the sample size grows. Moreover, the implications for testing the cointegrating rank of the process are explored. A new rank test is proposed and its asymptotic properties are derived. It is shown that its asymptotic null distribution is una®ected by the level shift. The performance of the shift date estimators and the cointegration rank tests in small samples is investigated by simulations.

Suggested Citation

  • Pentti SAIKKONEN & Helmut LUETKEPOHL & Carsten TRENKLER, 2004. "Break Date Estimation and Cointegration Testing in VAR Processes with Level Shift," Economics Working Papers ECO2004/21, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2004/21
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    Cited by:

    1. Karaman Örsal, Deniz Dilan & Arsova, Antonia, 2016. "A panel cointegration rank test with structural breaks and cross-sectional dependence," Annual Conference 2016 (Augsburg): Demographic Change 145822, Verein für Socialpolitik / German Economic Association.
    2. Kim, J.W. & Leatham, D.J. & Bessler, D.A., 2007. "REITs' dynamics under structural change with unknown break points," Journal of Housing Economics, Elsevier, vol. 16(1), pages 37-58, March.
    3. Naser, Hanan, 2014. "On the cointegration and causality between Oil market, Nuclear Energy Consumption, and Economic Growth: Evidence from Developed Countries," MPRA Paper 65252, University Library of Munich, Germany, revised 25 Mar 2015.
    4. Farid MAKHLOUF & Khaled CHNAINA, 2012. "Impact des Transferts de Fonds sur le Taux de Change Réel Effectif en Tunisie," Working Papers 2011-2012_4, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Feb 2012.
    5. Atle Oglend, Morten E. Lindbäck, and Petter Osmundsen, 2015. "Shale Gas Boom Affecting the Relationship Between LPG and Oil Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    6. repec:agr:journl:v:3(604):y:2015:i:3(604):p:5-20 is not listed on IDEAS
    7. Naser, Hanan, 2015. "Analysing the long-run relationship among oil market, nuclear energy consumption, and economic growth: An evidence from emerging economies," Energy, Elsevier, vol. 89(C), pages 421-434.

    More about this item

    Keywords

    Cointegration; Cointegrating rank test; Structural break; Vector autoregressive process; Error correction model;

    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

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