Closed-end consistent monitoring procedures are developed with the goal to detect structural changes in cointegrating relationships. We consider the vector error correction model of Johansen (1995) and allow for different specifications of the deterministic terms. We consider β′yt, where β is a matrix containing the cointegrating vectors and (yt) is a process integrated of order one, and propose monitoring test statistics to investigate the stability of these cointegrating relationships. We obtain the asymptotic distributions of our test statistics under the null hypothesis of no structural breaks. A calibration period is used for parameter estimation, after which online break-point detection is performed.
The procedure stops at the first time point the test statistic exceeds the corresponding critical value. A simulation study is provided to investigate the finite sample properties of our monitoring procedures. The procedures are applied to investigate possible changes in money demand.
The talk is about joint work with Martin Wagner (University of Klagenfurt, Institute for Advanced Studies, Vienna) and Masoud Abdollahi Mobarakeh (Institute for Advanced Studies,Vienna).
Speaker
Leopold Sögner is head of the IHS research group Business Cycle, Growth and Public Finances. He is presenting a project financed by the Austrian National Bank Anniversary Fund.
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