Hi, I am performing the Johansen cointegration test in Stata16. Before going to the test I have performed structural break test using command estat sbsingle for each of the variables. The result is that each variable have structural break, but at the different points in time. The Stata website on the structural breaks provides that: "Being able to detect when the structure of the time series changes can give us insights into the problem we are studying. Structural break tests help us to determine when and whether there is a significant change in our data." However, I am not sure if and how I should account for those breaks in ADF test and then in Johansen cointegration test. I have researched that the dummy variables can be created, however I am not clear on how to do that and then how to further treat them in ADF and Johansen tests.
Is it necessary to account for structural breaks in ADF and Johansen cointegration tests or would it be enough that I will be aware of them and include this information in my discussion?
If structural breaks have to be considered in ADF and Johansen cointegration tests for them to be valid what is the easiest way to do it? ( I have very little experience with the Stata)
Thank you for your help!
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