Testing for breaks in the cointegrating relationship: On the stability of government bond markets' equilibrium

Paulo Rodrigues, Philipp Sibbertsen and Michelle Voges

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: In this paper, test procedures for no fractional cointegration against possible breaks in the persistence structure of a fractional cointegrating relationship are introduced. The tests proposed are based on the supremum of the Hassler and Breitung (2006) test statistic for no cointegration over possible breakpoints in the long-run equilibrium. We show that the new tests correctly standardized converge to the supremum of a chisquared distribution, and that this convergence is uniform. An in-depth Monte Carlo analysis provides results on the finite sample performance of our tests. We then use the new procedures to investigate whether there was a dissolution of fractional cointegrating relationships between benchmark government bonds of ten EMU countries (Spain, Italy, Portugal, Ireland, Greece, Belgium, Austria, Finland, the Netherlands and France) and Germany with the beginning of the European debt crisis.

Keywords: Fractional cointegration; Persistence breaks; Hassler-Breitung test; Changing Long-run equilibrium (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2019-06
New Economics Papers: this item is included in nep-ecm, nep-eec and nep-ets
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Working Paper: Testing for breaks in the cointegrating relationship: On the stability of government bond markets’ equilibrium (2019)
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