Title: Online breakpoint-detection in cointegrating relationships Authors:  Leopold Soegner - Institute for Advanced Studies (Austria) [presenting]
Martin Wagner - University of Klagenfurt, Bank of Slovenia and Institute for Advanced Studies, Vienna (Austria)
Abstract: A closed-end consistent monitoring procedure is developed with the goal of detecting structural changes in cointegrating relationships. We consider a vector error correction model and allow for different specifications of the deterministic terms. We consider $\beta'y_t$, where $\beta$ is a matrix containing the cointegrating vectors and $(y_t)$ is a process integrated of order one. We propose a monitoring test statistic to investigate the stability of these cointegrating relationships. We obtain the asymptotic distribution of our test statistic 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 at which the test statistic exceeds the corresponding critical value. A simulation study is provided to investigate the finite sample properties of our monitoring procedure.