Testing the Null of Co-integration in the Presence of Variance Breaks

We show that changes in the innovation covariance matrix of a vector of series can generate spurious rejections of the null hypothesis of co-integration when applying standard residual-based co-integration tests. A bootstrap solution to the inference problem is suggested which is shown to perform well in practice, redressing the size problems associated with the standard test but not losing power relative to the standard test under the alternative.

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Year of publication:	2005-04
Authors:	Cavaliere, Giuseppe ; Taylor, A M Robert
Institutions:	Department of Economics, University of Birmingham
Subject:	Co-integration tests \| variance shifts \| fixed regressor bootstrap

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Series:	Discussion Papers.
Type of publication:	Book / Working Paper
Notes:	24 pages
Classification:	C22 - Time-Series Models ; C52 - Model Evaluation and Testing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005086694