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Consistent Monitoring of Cointegrating Relationships: The US Housing Market and the Subprime Crisis
Author(s) -
Wagner Martin,
Wied Dominik
Publication year - 2017
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/jtsa.12247
Subject(s) - estimator , econometrics , cointegration , mathematics , sample (material) , limiting , periodogram , subprime crisis , least squares function approximation , estimation , asymptotic distribution , economics , statistics , financial crisis , macroeconomics , mechanical engineering , chemistry , management , chromatography , engineering
We propose a consistent monitoring procedure for structural change in a cointegrating relationship. The procedure is inspired by Chu et al. (1996) by being based on parameter estimation on a prebreak ‘calibration’ period. We use three modified least squares estimators to obtain nuisance parameter‐free limiting distributions. We study the asymptotic and finite sample properties of the procedures and finally apply the approach to monitor two‐fundamentals‐driven US housing prices cointegrating relationships over the period 1976:Q1–2010:Q4 using the data of Anundsen (2015). Depending on the relationship considered and the estimation method used, a break point is detected as early as 2003:Q2, that is, well before US housing prices started to fall in 2007.