A Recursive Monte Carlo Study of Structural-Break Sensitivity of Adjustment Coefficients in Cointegrated VAR Systems

Takamitsu Kurita ()
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Takamitsu Kurita: Fukuoka University

Journal of Quantitative Economics, 2019, vol. 17, issue 2, No 1, 270 pages

Abstract: Abstract This paper studies the sensitivity of adjustment coefficients to various structural breaks in a cointegrated vector autoregressive system. A Monte Carlo simulation study is conducted in a recursive manner to examine fluctuations of finite-sample estimates of the coefficients. The study reveals the wide-ranging influences of breaks on the estimates, which can give rise to inference for spurious time-varying adjustment coefficients, although the underlying true coefficients are stable and time-invariant. It is thus advisable to be cautious about seemingly time-varying adjustment coefficients when analyzing time series data subject to structural breaks.

Keywords: Cointegrated vector autoregressive systems; Adjustment coefficients; Sensitivity; Structural breaks; Spurious time-varying parameters; Recursive Monte Carlo experiments (search for similar items in EconPapers)
JEL-codes: C32 C52 C63 E17 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s40953-019-00162-2

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