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Threshold effects In multivariate error correction models

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  • Gonzalo, Jesùs
  • Pitarakis, Jean-Yves

Abstract

In this paper we propose a testing procedure for assessing the presence of threshold effects in nonstationary Vector autoregressive models with or without cointegration. Our approach involves first testing whether the long run impact matrix characterising the VECM type representation of the VAR switches according to the magnitude of some threshold variable and is valid regardless of whether the system is purely I(1), I(1) with cointegration or stationary. Once the potential presence of threshold effects is established we subsequently evaluate the cointegrating properties of the system in each regime through a model selection based approach whose asymptotic and finite sample properties are also established. This subsequently allows us to introduce a novel non-linear permanent and transitory decomposition of the vector process of interest.

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File URL: http://eprints.soton.ac.uk/34547/1/2005-11-16.pdf
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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 0501.

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Date of creation: 01 Jan 2005
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Handle: RePEc:stn:sotoec:0501

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Cited by:
  1. Kirstin Hubrich & Timo Teräsvirta, 2013. "Thresholds and Smooth Transitions in Vector Autoregressive Models," CREATES Research Papers 2013-18, School of Economics and Management, University of Aarhus.
  2. Jaya Krishnakumar & David Neto, 2009. "Testing the "Inaction Corridor" in a Three-Regime TVECM," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva, Institut d'Economie et Econométrie, Université de Genève 2009.04, Institut d'Economie et Econométrie, Université de Genève.
  3. Dennis Kristensen & Anders Rahbek, 2007. "Likelihood-Based Inference in Nonlinear Error-Correction Models," CREATES Research Papers 2007-38, School of Economics and Management, University of Aarhus.
  4. Jaya Krishnakumar & David Neto, 2005. "Partial Cointegration," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva, Institut d'Economie et Econométrie, Université de Genève 2005.04, Institut d'Economie et Econométrie, Université de Genève, revised Aug 2006.
  5. Makram El-Shagi, 2010. "An Evolutionary Algorithm for the Estimation of Threshold Vector Error Correction Models," IWH Discussion Papers, Halle Institute for Economic Research 1, Halle Institute for Economic Research.
  6. Emmanuel De Veirman & Ashley Dunstan, 2008. "How do Housing Wealth, Financial Wealth and Consumption Interact? Evidence from New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/05, Reserve Bank of New Zealand.
  7. Candelon Bertrand & Lieb Lenard, 2011. "Fiscal Policy in Good and Bad Times," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 001, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  8. Nedeljkovic, Milan, 2008. "Testing for Smooth Transition Nonlinearity in Adjustments of Cointegrating Systems," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 876, University of Warwick, Department of Economics.
  9. Jaya Krishnakumar & David Neto, 2009. "Testing Uncovered Interest Rate Parity and Term Structure using Three-Regime Threshold Unit Root VECM," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva, Institut d'Economie et Econométrie, Université de Genève 2009.06, Institut d'Economie et Econométrie, Université de Genève.

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