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Short-Run Parameter Changes in a Cointegrated Vector Autoregressive Model

Author

Listed:
  • Takamitsu Kurita

    (Dept of Economics, University of Oxford)

  • Bent Nielsen

    (Dept of Economics, University of Oxford)

Abstract

This paper addresses the question of whether a conventional approach to cointegration is applicaple to the case where changes are allowed in the parameters for the short term dynamics. We reparametrise a vector autoregressive model such that the short-run parameters exhibiting changes at known points are explicitly given. We then show that the likelihood ratio test statistic for cointegration rank is based on reduced rank regression and has the usual asymptotic distribution. An empirical illustration using US gasoline prices is presented.

Suggested Citation

  • Takamitsu Kurita & Bent Nielsen, 2005. "Short-Run Parameter Changes in a Cointegrated Vector Autoregressive Model," Economics Papers 2005-W01, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:0501
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    File URL: http://www.nuff.ox.ac.uk/economics/papers/2005/W1/ParameterChange.pdf
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    Cited by:

    1. Emerson Fernandes Marçal & Fernando Barbi, 2010. "“Quo Vadis Real? Estimating the Brazilian Real Exchange Rate Misalignment in Vector Error Correction Model with Structural Change”," Working Papers 10-2010, Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto.

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