Structural Change in the Deterministic and Stochastic Part of VECM. I(1) and I(2) Case

Michał Majsterek () and Emilia Gosińska ()
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Michał Majsterek: University of Lodz
Emilia Gosińska: University of Lodz

Central European Journal of Economic Modelling and Econometrics, 2020, vol. 12, issue 4, 317-345

Abstract: The paper analyses the consequences of structural change in the presence of non-stationary stochastic processes I(1) or I(2). The structural change may concern the deterministic structure (in particular, the trend and the constant term) as well as the process generating the stochastic part. The focus of the paper is on the case of a discrete change in a regime for which the moment of switch is known. A change in the deterministic part does not alter the character of the cointegration relationships but its consequences for cotrending and cobreaking are interesting. The consequences of a change in the stochastic part are more complex, because then the stochastic process as well as the deterministic structure of the VECM are modified. The restrictions are analysed for both cases.

Keywords: structural change; DGP; cointegration; VAR model (search for similar items in EconPapers)
JEL-codes: C01 C32 C52 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:12:y:2020:i:4:p:317-345

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