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Journal of Quantitative Economics

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19-03-2019 | Original Article

A Recursive Monte Carlo Study of Structural-Break Sensitivity of Adjustment Coefficients in Cointegrated VAR Systems

Author: Takamitsu Kurita

Published in: Journal of Quantitative Economics | Issue 2/2019

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Abstract

This paper studies the sensitivity of adjustment coefficients to various structural breaks in a cointegrated vector autoregressive system. A Monte Carlo simulation study is conducted in a recursive manner to examine fluctuations of finite-sample estimates of the coefficients. The study reveals the wide-ranging influences of breaks on the estimates, which can give rise to inference for spurious time-varying adjustment coefficients, although the underlying true coefficients are stable and time-invariant. It is thus advisable to be cautious about seemingly time-varying adjustment coefficients when analyzing time series data subject to structural breaks.

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Title: A Recursive Monte Carlo Study of Structural-Break Sensitivity of Adjustment Coefficients in Cointegrated VAR Systems
Author: Takamitsu Kurita
Publication date: 19-03-2019
Publisher: Springer India
Published in: Journal of Quantitative Economics / Issue 2/2019
Print ISSN: 0971-1554
Electronic ISSN: 2364-1045
DOI: https://doi.org/10.1007/s40953-019-00162-2

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