Over the last three decades, the LSE methodology (see Hendry, 1993, for an overview) has emerged as a leading approach for pursuing econometrics. One of its main tenets is the concept of general-to-specific modelling: Starting from a general dynamic statistical model, which captures the...

This paper suggests a new methodological approach to the analysis of cointegrated linear systems subject to changes in regime. We consider cointegrated vector autoregressive processes where Markovian shifts occur in the equilibrium mean and the drift of the system. A two-stage maximum likelihood...