Title: Testing for cointegration under the presence broken trends
Authors: Antonio Montanes - University of Zaragoza (Spain) [presenting]
Lola Gadea - University of Zaragoza (Spain)
Abstract: The asymptotic behavior of a previous statistic when the variables being studied may exhibit broken trends is studied. We prove that this statistic works very poorly in these circumstances, leading to wrong results when the variables are I(1) or I(0) plus broken trends. We propose a method in order to correct this problem, based on the appropriate extraction of the deterministic elements. Our Monte Carlo results are promising, showing that our method works properly in finite samples.