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

Author

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  • Giuseppe Cavaliere
  • A. M. Robert Taylor

Abstract

. 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.

Suggested Citation

  • Giuseppe Cavaliere & A. M. Robert Taylor, 2006. "Testing the Null of Co‐integration in the Presence of Variance Breaks," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(4), pages 613-636, July.
    • Handle: RePEc:bla:jtsera:v:27:y:2006:i:4:p:613-636
    DOI: 10.1111/j.1467-9892.2006.00475.x
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    Cited by:

    1. Cavaliere, Giuseppe & Rahbek, Anders & Taylor, A.M. Robert, 2010. "Testing for co-integration in vector autoregressions with non-stationary volatility," Journal of Econometrics, Elsevier, vol. 158(1), pages 7-24, September.
    2. Kourogenis, Nikolaos & Pittis, Nikitas, 2008. "Cointegration, variance shifts and the limiting distribution of the OLS estimator," Economics Letters, Elsevier, vol. 99(1), pages 103-106, April.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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