A simple method of testing for cointegration subject to multiple regime changes

Gabriel, V.J. and Sola, M. and Psaradakis, Zacharias (2002) A simple method of testing for cointegration subject to multiple regime changes. Economics Letters 76 (2), pp. 213-221. ISSN 0165-1765.

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Official URL: https://doi.org/10.1016/S0165-1765(02)00038-1

Abstract

In this paper we propose a simple method of testing for cointegration in models that allow for multiple shifts in the long-run relationship. The procedure consists of carrying out conventional residual-based tests with standardized residuals from an appropriate Markov switching model. Our Monte Carlo results show that standard tests work well, even though their asymptotic validity can be questioned because they are not based on least-squares residuals. An empirical application to the present-value model of stock prices is also discussed.

Metadata

Item Type:	Article
School:	Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
Depositing User:	Sarah Hall
Date Deposited:	21 Jul 2020 09:39
Last Modified:	02 Aug 2023 18:01
URI:	https://eprints.bbk.ac.uk/id/eprint/32625

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