Asymptotic Critical Values for Johansen Tests With Structural Breaks

Background

In Giles and Godwin (2012) we provide EViews and R code that generates asymptotic p-values and the 1%, 5% and 10% asymptotic critical values for the Hl and Hc cointegration tests proposed by Johansen et al. for the situation where there are one or two structural breaks in the data at known points in the sample. These tests are readily implemented in EViews without the need to write any special code. The reader should be familiar with the Johansen et al. modifications to the usual Trace Test. A very readable and helpful discussion is provided by Joyeux (2007).

The EViews and R program files generate asymptotic p-values for user-supplied values of the Trace test statistics; the asymptotic critical values for various values of (p - r), where p is the number of variables in the VAR, and r is the number of cointegrating relations under test. This is achieved by (a) using the response surfaces in Table 4 of Johansen et al. to obtain the mean and variance of the desired asymptotic distribution; (b) using these two moments to "recover" the shape and scale parameters of a Gamma distribtion, which is then used to approximate the asymptotic sampling distributions of the test statistics, and provide the desired percentiles and p-values.

Files for Downloading

The EViews workfile and program file were created using EViews 7.2. The workfile contains a READ_ME text object. The R code was written under version 2.13.0.

  • EViews Workfile: Johansen et al structural breaks.wf1
  • EViews Program File: Johansen et al structural breaks.prg
  • R Program File: Johansen et al structural breaks.r
  • Excel Workfile With Selected Critical Values: Johansen et al critical values.xls
  • References:

  • Giles, D. E. and R. T. Godwin (2012), "Testing for Multivariate Cointegration in the Presence of Structural Breaks: p-Values and Critical Values", Applied Economics Letters, 19, 1561-1565.
  • Johansen, S., R. Mosconi and B. Nielsen (2000), "Cointegration analysis in the presence of structural breaks in the deterministic trend", Econometrics Journal, 3, 216-249.
  • Joyeux, R. (2007), "How to deal with structural breaks in practical cointegration analysis", in B. Bhaskara Rao (ed.), Cointegration for the Applied Economists, (2nd. ed.), Palgrave Macmillan, New York, 195-221.
  • Last Update: 27 August, 2013

    Contact: David Giles; email: dgiles@uvic.ca; Department of Economics, University of Victoria, P.O. Box 1700 STN CSC, Victoria, B.C., CANADA V8W 2Y2; Tel.: +1-250-721-8540