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Detection of switching cointegration rank allowing for switching lag structure: an application to money-demand function

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  • Kosei Fukuda

Abstract

A new method is developed for detecting regime switches between cointegration and no-cointegration at unknown times allowing for switching lag structure. In this method, time-series observations are divided into several segments, and a regression model with or without cointegration is fitted to each segment. The goodness of fit of the global model composed of these local models is evaluated using the corresponding modified information criterion, and the division which minimizes this criterion defines the best model. Simulation results suggest that the proposed method works well. Empirical results indicate that money demand is well described by the proposed method in Canada, UK and Japan.

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  • Kosei Fukuda, 2008. "Detection of switching cointegration rank allowing for switching lag structure: an application to money-demand function," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1571-1582.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:12:p:1571-1582
    DOI: 10.1080/00036840600843962
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    Cited by:

    1. Chien-Chiang Lee & An-Hsing Chang, 2013. "Revisiting the demand for money function: evidence from the random coefficients approach," Quantitative Finance, Taylor & Francis Journals, vol. 13(9), pages 1491-1502, September.
    2. Balakrishnan, Pulapre & Das, Mausumi & Parameswaran, M., 2017. "The internal dynamic of Indian economic growth," Journal of Asian Economics, Elsevier, vol. 50(C), pages 46-61.
    3. Pulapre Balakrishnan & Mausumi Das & M. Parameswaran, 2015. "The Mechanism of Long-Term Growth in India," Working Papers id:6414, eSocialSciences.

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