A0590
Title: Open-end monitoring of structural breaks in the cointegration VAR
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: An open-end consistent monitoring procedure is developed with the goal of performing online break-point detection in a vector error correction model (VECM). A state-space representation is obtained, where the vector of state variables contains the first difference of the $I(1)$ variables generated by the VECM, lagged first differences, and the "long-run relations", following from the product of the transpose of the matrix of cointegrating vectors and the $I(1)$ variables considered. For this vector of state variables, the influence function arising from the first and second moments of this stationary vector of state variables is obtained. This allows obtaining an open-end monitoring procedure by following literature considering the stationary case. Both breaks are investigated where the cointegration rank remains as well as breaks where the cointegration rank changes. The cases arising from deterministic terms are fully covered, containing a constant and a time trend in the vector error correction model.
