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Threshold Effects in Cointegrating Relationships *
Author(s) -
Gonzalo Jesús,
Pitarakis JeanYves
Publication year - 2006
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2006.00458.x
Subject(s) - cointegration , endogeneity , econometrics , null hypothesis , threshold model , variable (mathematics) , mathematics , autocorrelation
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.