Simple tests for the null of no cointegration with structural breaks
نویسنده
چکیده
In this paper, a synthesis of the recently advanced Lagrange multiplier (LM)-based tests for the null of no cointegration which account for different patterns of breaks in the cointegrating relationship is provided. The limiting distributions of the test statistics are not only invariant to an intercept break and a break in the cointegrating vector, but are also invariant to a trend break in a modified version. Relevant critical values for the LM tests are also simulated for their practical implementation. Taking advantage of the invariance property, a new testing procedure rooted on the same approach is also proposed to test for the null of no cointegration among a set of time series with broken trends. The testing procedure excels available procedures by allowing heterogeneous unknown structural breaks under both the null and the alternative in the trend functions of time series. A Monte Carlo analysis is conducted to assess the performance of the proposed tests. JEL classification: C12, C22
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