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A simple method of testing for cointegration subject to multiple regime changes
Gabriel, Vasco J.; Sola, Martin; Psaradakis, ZachariasIn 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...
Residual-based tests for cointegration and multiple regime shifts
Gabriel, Vasco J.; Sola, Martin; Psaradakis, ZachariasIn this paper we examine the properties of several cointegration tests when long run parameters are subject to multiple shifts, resorting to Monte Carlo methods. We assume that the changes in cointegration regimes are governed by a unobserved Markov chain process. This specification has the considerable advantage of allowing for an unspecified number of stochastic breaks, unlike previous works that consider a s...
A simple method for testing cointegration subject to regime
Gabriel, Vasco J.; Sola, Martin; Psaradakis, ZachariasIn this paper, we propose a simple method for testing cointegration in models that allow for multiple shifts in the long run relationship. The procedure consists of computing conventional residual-based tests with standardized residuals from Markov switching estimation. No new critical values are needed. An empirical application to the present value model of stock prices is presented, complemented by a small Mo...
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