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New Improved Tests for Cointegration with Structural Breaks
Author(s) -
Westerlund Joakim,
Edgerton David L.
Publication year - 2007
Publication title -
journal of time series analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.576
H-Index - 54
eISSN - 1467-9892
pISSN - 0143-9782
DOI - 10.1111/j.1467-9892.2006.00504.x
Subject(s) - cointegration , mathematics , structural break , monte carlo method , heteroscedasticity , null hypothesis , econometrics , statistical hypothesis testing , lagrange multiplier , statistics , sample size determination
. This article proposes Lagrange multiplier‐based tests for the null hypothesis of no cointegration. The tests are general enough to allow for heteroskedastic and serially correlated errors, deterministic trends, and a structural break of unknown timing in both the intercept and slope. The limiting distributions of the test statistics are derived, and are found to be invariant not only with respect to the trend and structural break, but also with respect to the regressors. A small Monte Carlo study is also conducted to investigate the small‐sample properties of the tests. The results reveal that the tests have small size distortions and good power relative to other tests.