Testing the Null of Co-integration in the Presence of Variance Breaks

Giuseppe Cavaliere and Robert Taylor

Discussion Papers from Department of Economics, University of Birmingham

Abstract: We show that changes in the innovation covariance matrix of a vector of series can generate spurious rejections of the null hypothesis of co-integration when applying standard residual-based co-integration tests. A bootstrap solution to the inference problem is suggested which is shown to perform well in practice, redressing the size problems associated with the standard test but not losing power relative to the standard test under the alternative.

Keywords: Co-integration tests; variance shifts; fixed regressor bootstrap (search for similar items in EconPapers)
JEL-codes: C22 C52 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2005-04
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Journal Article: Testing the Null of Co‐integration in the Presence of Variance Breaks (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:bir:birmec:05-10

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