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Threshold Effects in Cointegrating Relationships

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URI: https://hdl.handle.net/10016/3230
ISSN: 0305-9049
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GonzaloPitarakis-OBES-06.pdf (207.22 KB)
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2006-11
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University of Oxford, Department of Economics; Blackwell
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Abstract
In this paper, we introduce threshold-type nonlinearities within a single-equation cointegrating regression model and propose a testing procedure for testing the null hypothesis of linear cointegration vs. cointegration with threshold effects. Our framework allows the modelling of long-run equilibrium relationships that may change according to the magnitude of a threshold variable assumed to be stationary and ergodic, and thus constitutes an attempt to deal econometrically with the potential presence of multiple equilibria. The framework is flexible enough to accommodate regressor endogeneity and serial correlation.
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Nonlinear Cointegration, Multiple Long Run Equilibria, Thresholds, Nonlinear Dynamics, Unit Roots
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Oxford Bulletin of Economics and Statistics, vol. 68, Issue s1, p. 813-833
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