Efficient estimation and inference in cointegrating regressions with structural change

Eiji Kurozumi, Yoichi Arai

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper investigates an efficient estimation method for a cointegrating regression model with structural change. Our proposal is that we first estimate the break point by minimizing the sum of squared residuals and then, by replacing the break fraction with the estimated one, we estimate the regression model by the canonical cointegrating regression (CCR) method proposed by Park [Econometrica (1992) Vol. 60, pp. 119-143]. We show that the estimator of the break fraction has the same convergence rate as obtained in Bai, Lumsdaine and Stock [Review of Economic Studies (1998) Vol. 65, pp. 395-432] and that the CCR estimator with the estimated break fraction has the same asymptotic property as the estimator with the known break point. However, we also show that our method breaks down when the magnitude of structural change is very small. Simulation experiments reveal how the finite sample distribution approaches the limiting distribution as the magnitude of the break and or the sample size increases.

Original languageEnglish
Pages (from-to)545-575
Number of pages31
JournalJournal of Time Series Analysis
Volume28
Issue number4
DOIs
Publication statusPublished - 2007 Jul 1
Externally publishedYes

Keywords

  • Canonical cointegrating regression
  • Cointegration
  • Estimation
  • Single equation
  • Statistical inference
  • Structural change

ASJC Scopus subject areas

  • Statistics and Probability
  • Statistics, Probability and Uncertainty
  • Applied Mathematics

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