Multicointegration, polynomial cointegration and I(2) cointegration with structural breaks. An application to the sustainability of the US external deficit

Vanessa Berenguer-Rico () and Josep Carrion-i-Silvestre
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Vanessa Berenguer-Rico: Faculty of Economics, Juan Carlos III.

No 200709, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: In this paper we model the multicointegration relation, allowing for one structural break. Since multicointegration is a particular case of polynomial or I(2) cointegration, our proposal can also be applied in these cases. The paper proposes the use of a residualbased Dickey-Fuller class of statistic that accounts for one known or unknown structural break. Finite sample performance of the proposed statistic is investigated by using Monte Carlo simulations, which reveals that the statistic shows good properties in terms of empirical size and power. We complete the study with an empirical application of the sustainability of the US external deficit. Contrary to existing evidence, the consideration of one structural break leads to conclude in favour of the sustainability of the US external deficit.

Keywords: I(2) processes; multicointegration; polynomial cointegration; structural break; sustainability of external deficit. (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2007-05, Revised 2007-05
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:ira:wpaper:200709

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