Partial Cointegrated Vector Autoregressive Models with Structural Breaks in Deterministic Terms

Abstract

This paper proposes a class of partial cointegrated models allowing for structural breaks in the deterministic terms. Moving-average representations of the models are given. It is then shown that, under the assumption of martingale difference innovations, the limit distributions of partial quasi-likelihood ratio tests for cointegrating rank have a close connection to those for standard full models. This connection facilitates a response surface analysis that is required to extract critical information about moments from large-scale simulation studies. An empirical illustration of the proposed methodology is also provided.

Keywords

• partial cointegrated vector autoregressive models
• structural breaks
• deterministic terms
• weak exogeneity
• cointegrating rank
• response surface