A simple method for testing cointegration subject to regime changes

Vasco J. Gabriel, Martin Sola () and Zacharias Psaradakis
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Zacharias Psaradakis: Birkbeck College, University of London

No 15/2001, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: In this paper, we propose a simple method for testing cointegration in models that allow for multiple shifts in the long run relationship. The procedure consists of computing conventional residual-based tests with standardized residuals from Markov switching estimation. No new critical values are needed. An empirical application to the present value model of stock prices is presented, complemented by a small Monte Carlo experiment.

Keywords: Cointegration; Markov Switching; Standardized residuals. (search for similar items in EconPapers)
JEL-codes: C12 C22 C52 (search for similar items in EconPapers)
Date: 2001
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