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Residual-based tests for cointegration in models with regime shifts
Open accessAbstract
In this paper we examine tests for cointegration which allow for the possibility of regime shifts. We propose ADF-, Zα-, and Zt-type tests designed to test the null of no cointegration against the alternative of cointegration in the presence of a possible regime shift. In particular we consider cases where the intercept and/or slope coefficients have a single break of unknown timing. A formal proof is provided for the limiting distributions of the various tests for the regime shift model (both a level and slope change). Critical values are calculated for the tests by simulation methods and a simple Monte Carlo experiment is conducted to evaluate finite-sample performance. In the limited set of experiments, we find that the tests can detect cointegrating relations when there is a break in the intercept and/or slope coefficient. For these same experiments, the power of the conventional ADF test with no allowance for regime shifts falls sharply. As an illustration we test for structural breaks in the U.S. long-run money-demand equation using annual and quarterly data.
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Cites
Co-integration and error correction: representation, estimation and testing
Engle, R. F., & Granger, C. W. J. (1987) · Econometrica · doi:10.2307/1913236 · Cited by 32,007
STATISTICAL ANALYSIS OF COINTEGRATION VECTORS
Johansen, S. (1988) · Journal of Economic Dynamics and Control · doi:10.1016/0165-1889(88)90041-3 · Cited by 17,027
Cited by
Further evidence on breaking trend functions in macroeconomic variables
Perron, P. (1997) · Journal of Econometrics · doi:10.1016/s0304-4076(97)00049-3 · Cited by 2,035
Salahuddin, M., Alam, K., Ozturk, I., & Sohag, K. (2018) · Renewable and Sustainable Energy Reviews · doi:10.1016/j.rser.2017.06.009 · Cited by 773
Do oil price shocks matter? Evidence for some European countries
Cuñado, J., & Pérez de Gracia, F. (2003) · Energy Economics · doi:10.1016/s0140-9883(02)00099-3 · Cited by 466
Tests for cointegration allowing for an unknown number of breaks
Maki, D. (2012) · Economic Modelling · doi:10.1016/j.econmod.2012.04.022 · Cited by 444
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Lee, C.-C., & Chang, C.-P. (2005) · Energy Economics · doi:10.1016/j.eneco.2005.08.003 · Cited by 391
Metadata
- Authors
- Gregory, A. W., & Hansen, B. E.
- Venue
- Journal of Econometrics
- Publisher
- Elsevier BV
- Published
- 1996-01
- Volume
- 70
- Issue
- 1
- Pages
- 99-126
- ISSN
- 0304-4076 (ISSN-L)
- OpenAlex
- W1972956294
- Cited by
- 2,518
- References
- 2
- FWCI
- 47.13
- Type
- journal article
- Language
- en
- Open access
- hybrid
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- Gregory, A. W., & Hansen, B. E. (1996). Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics. https://doi.org/10.1016/0304-4076(69)41685-7
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
