How to Deal with Structural Breaks in Practical Cointegration Analysis

Roselyne Joyeux

23 citations0/0 files storedRePEc: Research Papers in Economics

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Abstract

Johansen, Mosconi and Nielsen (2000) generalize the likelihood-based cointegration analysis developed by Johansen (1988, 1996) to the case where structural breaks exist at known points in time. In this paper we provide a simple explanation of the specification of intervention dummies in VAR models used to test for cointegration, which is not present in the later paper. We also give practical guidelines for the inclusion and the specification of intervention dummies in VAR models and present simulation results, which illustrate the importance of specifying the dummy variables correctly.

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References

1989The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis 2002Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis 1992Nonstationarity and Level Shifts With an Application to Purchasing Power Parity 1990Testing for a Unit Root in a Time Series With a Changing Mean 2000Cointegration analysis in the presence of structural breaks in the deterministic trend 2001How to deal with intercept and trend in practical cointegration analysis?

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