Testing for fractional cointegration in subsamples by allowing for structural breaks

Tom Jannik Kreye

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: In this paper, tests for fractional cointegration that allow for structural breaks in the long-run equilibrium are proposed. Traditional cointegration tests cannot handle shifts in fractional cointegration relationships, a limitation addressed here by allowing for a time-dependent memory parameter for the cointegration error. The tests are implemented by taking the extremum of a residual-based fractional cointegration test applied to different subsamples of the data. The subsampling procedures include sample splits, incremental samples, and rolling samples. A fairly general cointegration model is assumed, where the observed series and the cointegration error are fractionally integrated processes. Under the alternative hypothesis, the tests converge to the supremum of a chi-squared distribution. A Monte Carlo simulation is used to evaluate the finite sample performance of the tests.

Keywords: Fractional Cointegration; Long Memory; Monte Carlo; Persistence Breaks; Structural Breaks; Subsample Analysis (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2024-12
New Economics Papers: this item is included in nep-ecm and nep-ets
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