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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2006:3:
New Improved Tests for Cointegration with Structural Breaks

Joakim Westerlund () and David Edgerton ()

Abstract: This paper proposes Lagrange multiplier based tests for the null hypothesis of no cointegration. The tests are general enough to allow for heteroskedastic and serially correlated errors, deterministic trends, and a structural break of unknown timing in both the intercept and slope. The limiting distributions of the test statistics are derived, and are found to be invariant not only with respect to trend and structural break, but also with respect to the regressors. A small Monte Carlo study is also con- ducted to investigate the small-sample properties of the tests. The results reveal that the tests have small size distortions and good power relative to other tests.

Keywords: Cointegration Test; Lagrange Multiplier Principle; Structural Break; Deterministic Trend.; (follow links to similar papers)

JEL-Codes: C12; C32; C33; (follow links to similar papers)

40 pages, January 14, 2006

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This paper is published as:
Westerlund, Joakim and David Edgerton, (2007), 'New Improved Tests for Cointegration with Structural Breaks', Journal of Time Series Analysis, Vol. 28, pages 188-224



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