PRACTITIONERS CORNER: Tests for Cointegration in Models with Regime and Trend Shifts

ABSTRACT Recently Gregory and Hansen (1996) proposed a number of residual‐based tests for cointegration in models with the possibility of a structural break. They considered three models: (i) level shift; (ii) level shift with trend; and (iii) regime shift (both level shift and slope coefficients can change). We introduce a more general model that permits a trend shift as well as a regime shift and we provide the critical values appropriate for testing this hypothesis.