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Structural changes in the cointegrated vector autoregressive model
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DOI：10.1016/S0304-4076(03)00085-X.png)
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Abstract
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This paper generalizes the cointegrated vector autoregressive model of Johansen (J. Econom. Dyn. Control 12 (1988) 231-254) to allow for structural changes. We take the time of the change points and the number of cointegration relations as given. Estimation under various hypotheses is made possible by a new estimation technique, which makes it simple to derive a number of interesting likelihood ratio tests. For example, one can test for m structural changes against m+k structural changes, or test linear parameter restrictions in the presence of structural changes. The asymptotic distribution of the likelihood ratio statistic is chi(2) in both cases. The model is applied to US term structure data, and structural changes in September 1979 and October 1982, which coincide with large changes in the Fed's policy, are found to be significant. After accounting for these structural changes, we cannot, contrary to previous studies, reject the long-run implication of the expectations hypothesis. (C) 2003 Elsevier Science B.V. All rights reserved.
Keywords:
structural change
cointegration
vector autoregression
term structure
expectations hypothesis
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