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.
Cavaliere G., Taylor A.M.R. (2006). Testing the null of co-integration in the presence of variance breaks. JOURNAL OF TIME SERIES ANALYSIS, 27(4), 619-636 [10.1111/j.1467-9892.2006.00475.x].
Testing the null of co-integration in the presence of variance breaks
CAVALIERE, GIUSEPPE;
2006
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.