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Testing the Null of Cointegration with Structural Breaks

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  • Josep Lluís Carrion-i-Silvestre
  • Andreu Sansó

Abstract

In this paper we propose an LM-Type statistic to test the null hypothesis of cointegration allowing for the possibility of a structural break, in both the deterministic and the cointegration vector. Our proposal focuses on the presence of endogenous regressors and analyses which estimation method provides better results. The test has been designed to be used as a complement to the usual non-cointegration tests in order to obtain stronger evidence of cointegration. We consider the cases of known and unknown break date. In the latter case, we show that minimizing the SSR results in a super-consistent estimator of the break fraction. Finally, the behaviour of the tests is studied through Monte Carlo experiments.

Suggested Citation

  • Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2005. "Testing the Null of Cointegration with Structural Breaks," DEA Working Papers 10, Universitat de les Illes Balears, Departament d'Economía Aplicada.
  • Handle: RePEc:ubi:deawps:10
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    References listed on IDEAS

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    More about this item

    Keywords

    cointegration; strcutural breaks; KPSS test.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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