The effect of structural breaks on the Engle-Granger test for cointegration

Antonio Noriega () and Daniel Ventosa-Santaulària

Estudios Económicos, 2012, vol. 27, issue 1, 99-132

Abstract: This paper extends Gonzalo and Lee's (1998) results by studying the asymptotic and finite sample behavior of the Engle-Granger test for cointegration, under misspecification of the trend function in the form of neglected structural breaks. We allow breaks in level and slope of trend in both dependent and explanatory variables. We also allow these processes to interact with I (1) processes without breaks. In some cases, breaks bias the EG test towards both rejecting a true cointegration relation, and not rejecting a non-existent one. Using real data, we present an empirical illustration of the theoretical results.

Keywords: cointegration; structural breaks; integrated processes; Engle-Granger test (search for similar items in EconPapers)
JEL-codes: C12 C13 C22 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/94/96 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:emx:esteco:v:27:y:2012:i:1:p:99-132

Access Statistics for this article

More articles in Estudios Económicos from El Colegio de México, Centro de Estudios Económicos Contact information at EDIRC.
Bibliographic data for series maintained by Ximena Varela ().