The empirical literature making use of unit root and cointegration tests has been growing over the last two decades. The application of those tests is challenging for many reasons including the treatment of deterministic terms (constant and trend) and structural breaks. Franses (2001) addresses the problem of how to deal with intercept and trend in practical cointegration analysis. In this chapter, the same approach is applied to the treatment of structural breaks in VAR models used to test for unit roots and cointegration.
|Title of host publication||Cointegration for the applied economist|
|Editors||B. Bhaskara Rao|
|Place of Publication||Houndmills, Basingstoke, UK|
|Publication status||Published - 2007|