[R-SIG-Finance] Extension of Johansen Procedure ca.jo

Johannes Lips johannes.lips at gmail.com
Fri Oct 16 14:27:23 CEST 2015

Dear list,

I am currently working on an extension of the basic ca.jo() function to 
also make it possible to incorporate structural breaks, like in Johansen 
et al. (2000). What I basically do is to add a matrix, which 
incorporates possible structural breaks in the cointegration vector. 
Therefore I added the function paramter break.matrix, which so far takes 
the break matrix according to the H_l(r) case of Johansen et al. (2000).
I construct the dummy matrix according to Joyeux (2007) and add them to 
the dumvar and the break.matrix parameter of the ca.jo function.
So far it "works", but I am unsure if I made all the adjustments of the 
ca.jo function correctly and I would be really glad if someone could 
also take a look at the function and see if it does, what it's supposed 
to do.
I uploaded the function to my github repo at [1], where I also provide 
the code to create the dummy matrix incorporating the possible 
structural breaks. Please note, that the creation of the dummy matrix is 
also not yet finished and most probably also needs some changes and is 
only for the purpose of testing the ca.jomoni() function.

Thanks in advance,

[1] https://github.com/hannes101/CointegrationAnalysis

Johansen, Søren, Rocco Mosconi, and Bent Nielsen (2000). “Cointegration 
analysis in the presence of structural breaks in the deterministic 
trend”. en. In: Econometrics Journal 3.2, pp. 216–249. doi: 
10.1111/1368- 423X.00047 (cit. on p. 6).

Joyeux, Roselyne (2007). “How to Deal with Structural Breaks in 
Practical Cointegration
Analysis”. English. In: Cointegration for the Applied Economist. Ed. by
B. Bhaskara Rao. 2nd edition. Palgrave Macmillan, p. 256 (cit. on p. 6).

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