Testing for the Null Hypothesis of Cointegration with Structural Breaks

Yoichi Arai and Eiji Kurozumi ()

No CIRJE-F-319, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: In this paper we propose residual-based tests for the null hypothesis of cointegration with structural breaks against the alternative of no cointegration. The Lagrange Multiplier test is proposed and its limiting distribution is obtained for the case in which the timing of a structural break is known. Then the test statistic is extended in two ways to deal with a structural break of unknown timing. The first test statistic, a plug-in version of the test statistic for known timing, replaces the true break point by the estimated one. We also propose a second test statistic where the break point is chosen to be most favorable for the null hypothesis. We show the limiting properties of both statistics under the null as well as the alternative. Critical values are calculated for the tests by simulation methods. Finite-sample simulations show that the empirical size of the test is close to the nominal one unless the regression error is very persistent and that the test rejects the null when no cointegrating relationship with a structural break is present.

Pages: 41 pages
Date: 2005-02
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Testing for the Null Hypothesis of Cointegration with a Structural Break (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2005cf319

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