p-Values for Cointegration Tests With Breaks in the Data

June 28, 2011
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(This article was first published on Econometrics Beat: Dave Giles' Blog, and kindly contributed to R-bloggers)

In an earlier post I went through some econometrics that involved the problem of testing for multivariate cointegration in the case where there are one or more trend-breaks or level-breaks in the time-series data.  Specifically, I talked about the modified Trace tests introduced by Johansen et al. (2000), and I mentioned the really nice discussion of the application of these tests that is provided by Joyeux (2007).

Two things relating to this occurred to me recently. The first was that while I'd provided EViews code for calculating asymptotic critical values to be used with these tests, it would also be useful to have the corresponding code for calculating p-values for any calculated values of the Trace test statistics.

Second, given the discussion and comments in my recent posts (here and here) about open-source software, I thought it would be a good idea to make the p-values and critical values code available for users of R. (Thanks for the earlier comments, "Ben" and Tal Galili!)

So, in a joint effort, Ryan Godwin and I have written the R code, and extended the earlier EViews code to compute the p-values. Both of them are on the Code  page that goes with this blog - in two places: under this post, and also in place of the code for the earlier post. (You can thank Ryan for the nice windows that open when you run the R program.) In addition, an Excel workbook with a big selection of critical values is avalable on the Data page for this blog.

We hope you find the programs useful!


Note: The links to the following references will be helpful only if your computer's IP address gives you access to the electronic versions of the publications in question. That's why a written References section is provided.

References

Johansen, S., R. Mosconi and B. Nielsen (2000). Cointegration analysis in the presence of structural breaks in the deterministic trend. Econometrics Journal, 3, 216-249.

Joyeux, R. (2007). How to deal with structural breaks in practical cointegration analysis? In B. B. Rao (ed.), Cointegration for the Applied Economist, Second Edition, Palgrave Macmillan, New York, 195-221.



© 2011, David E. Giles

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