End-of-Sample Cointegration Breakdown Tests

Donald Andrews () and Jae-Young Kim ()
Additional contact information
Jae-Young Kim: SUNY at Albany

Yale School of Management Working Papers from Yale School of Management

Abstract: This paper introduces tests for cointegration breakdown that may occur over a relatively short time period, such as at the end of the sample. The breakdown may be due to a shift in the cointegrating vector or due to a shift in the errors from being I(0) to being I(1). Tests are introduced based on the post-breakdown sum of squared residuals and the post-breakdown sum of squared reverse partial sums of residuals. Critical values are provided using a parametric subsampling method. The regressors in the model are taken to be arbitrary linear combinations of deterministic, stationary, and integrated random variables. The tests are asymptotically valid when the number of observations in the breakdown period, m, is fixed and finite as the total sample size, T+m, goes to infinity. The tests are asymptotically valid under weak conditions. Simulation results indicate that the tests work well in the scenarios considered. Use of the tests is illustrated by testing for interest rate parity breakdown during the Asian financial crisis of 1997.

Keywords: Cointegration; Least Squares Estimator; Model Breakdown; Parameter Change Test; Structural Change (search for similar items in EconPapers)
JEL-codes: C12 C52 (search for similar items in EconPapers)
Date: 2004-07-28
New Economics Papers: this item is included in nep-ets
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=386081 (application/pdf)

Related works:
Working Paper: End-of-Sample Conintegratio Breakdown Tests (2004)
Working Paper: End-of-Sample Cointegration Breakdown Tests (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:ysm344

Access Statistics for this paper

More papers in Yale School of Management Working Papers from Yale School of Management Contact information at EDIRC.
Bibliographic data for series maintained by ().