Hendry, D.F. and M. Massmann
Journal of Business & Economic Statistics January 2007, Vol. 25, No. 1 DOI 10.1198/073500106000000422View Journal Article / Working Paper
This article has two aims. First, we provide a synopsis of the literature on co-breaking that has developed in several, seemingly disconnected, strands. We establish a consistent terminology, collect theoretical results, delimit co-breaking to cointegration and common features, and review recent contributions to cobreaking regressions and the budding analysis of co-breaking rank. Second, we present new results in the field, particularly, on the importance of co-breaking for policy analysis, with special emphasis on impulseresponse functions. Moreover, a new procedure for co-breaking rank testing is presented, evaluated by Monte Carlo experiments, and illustrated using U.K. macroeconomic data.