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A model selection approach to jointly testing for structural breaks and cointegration with application to the Eurocurrency interest rates market

Yan Qian and Zijun Wang ()
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Yan Qian: Suzhou University of Science and Technology
Zijun Wang: University of Texas at San Antonio

Empirical Economics, 2021, vol. 61, issue 2, No 10, 799-825

Abstract: Abstract All tests involving both structural breaks and cointegration are parametric. As a complement to the classical hypothesis testing for empirical researchers, we suggest the use of a one-step model selection approach to simultaneously specifying lag orders, cointegration ranks, and structural breaks. The performances of the four popular information criteria along with a LM-based parametric test are shown in extensive simulation studies. Applying the approach to study linkages in the Eurocurrency interest rates market, we find that six major short-term rates were subject to a structural break and the cointegration rank also changed following the break.

Keywords: Model selection; Structural break; Cointegration; Eurocurrency interest rates (search for similar items in EconPapers)
JEL-codes: C32 C52 E43 G15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00181-020-01916-1

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