Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/308782 
Year of Publication: 
2024
Series/Report no.: 
Hannover Economic Papers (HEP) No. 733
Publisher: 
Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, Hannover
Abstract: 
In this paper, tests for fractional cointegration that allow for structural breaks in the long-run equilibrium are proposed. Traditional cointegration tests cannot handle shifts in fractional cointegration relationships, a limitation addressed here by allowing for a time-dependent memory parameter for the cointegration error. The tests are implemented by taking the extremum of a residual-based fractional cointegration test applied to different subsamples of the data. The subsampling procedures include sample splits, incremental samples, and rolling samples. A fairly general cointegration model is assumed, where the observed series and the cointegration error are fractionally integrated processes. Under the alternative hypothesis, the tests converge to the supremum of a chi-squared distribution. A Monte Carlo simulation is used to evaluate the finite sample performance of the tests.
Subjects: 
Fractional Cointegration
Long Memory
Monte Carlo
Persistence Breaks
Structural Breaks
Subsample Analysis
JEL: 
C12
C32
Document Type: 
Working Paper

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