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Threshold effects in cointegrating relationships

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  • Gonzalo, J.
  • Pitarakis, J.

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 versus cointegration with threshold effects. Our framework allows the modelling of long run equilibrium relationships that may switch 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 long-run equilibria. The framework is flexible enough to accomodate regressor endogeneity and serial correlation. An important component of our analysis is also the development of a formal definition of the concept of threshold cointegration. Monte-Carlo simulations are used to show that the proposed procedures have good finite sample properties. Keywords; nonlinear cointegration, multiple long run equilibria, thresholds, nonlinear dynamics, unit roots

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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 0506.

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Date of creation: 01 Jan 2005
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Handle: RePEc:stn:sotoec:0506

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References

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  1. Robert de Jong, 2004. "Nonlinear estimators with integrated regressors but without exogeneity," Econometric Society 2004 North American Winter Meetings, Econometric Society 324, Econometric Society.
  2. George Kapetanios & Yongcheol Shin & Andy Snell, 2003. "Testing for Cointegration in Nonlinear STAR Error Correction Models," Working Papers, Queen Mary, University of London, School of Economics and Finance 497, Queen Mary, University of London, School of Economics and Finance.
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Cited by:
  1. Bruno Larue & Jean-Philippe Gervais & Yannick Rancourt, 2010. "Exchange rate pass-through, menu costs and threshold cointegration," Empirical Economics, Springer, Springer, vol. 38(1), pages 171-192, February.
  2. Pitarakis, Jean-Yves, 2012. "Functional cointegration: definition and nonparametric estimation," MPRA Paper 38846, University Library of Munich, Germany.
  3. Anne laure Delatte & Julien Fouquau, 2010. "Smooth transition in China: New evidence in the cointegrating money demand relationship," Economics Bulletin, AccessEcon, vol. 30(1), pages 265-273.
  4. Yang, Zheng & Tian, Zheng & Yuan, Zixia, 2008. "Small sample improvements in the threshold cointegration test using residual-based moving block bootstrap," Mathematics and Computers in Simulation (MATCOM), Elsevier, Elsevier, vol. 78(4), pages 507-513.
  5. Ankamah-Yeboah, Isaac, 2012. "Spatial Price Transmission in the Regional Maize Markets in Ghana," MPRA Paper 49720, University Library of Munich, Germany.
  6. Guillaume Chevillon & Sophocles Mavroeidis, 2013. "Learning generates Long Memory," Post-Print, HAL hal-00661012, HAL.
  7. Haiqiang Chen, 2013. "Robust Estimation and Inference for Threshold Models with Integrated Regressors," SFB 649 Discussion Papers SFB649DP2013-034, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  8. Araujo-Enciso, Sergio Rene, 2011. "The Takayama and Judge Price and Allocation Model and its Application in Non-linear Techniques for Spatial Market Integration," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 114225, European Association of Agricultural Economists.
  9. Zeno Adams & Roland Füss, 2012. "Disentangling the Short and Long-Run Effects of Occupied Stock in the Rental Adjustment Process," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 44(4), pages 570-590, May.
  10. Traub, Lulama Ndibongo & Myers, Robert J. & Jayne, Thomas S. & Meyer, Ferdinand H., 2010. "Measuring Integration and Efficiency in Maize Grain Markets: The Case of South Africa and Mozambique," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Afri 96644, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
  11. Marçal, Emerson Fernandes & Valls Pereira, Pedro L., 2012. "Evaluating the existence of structural change in the brazilian term structure of interest : evidence based on cointegration models with structural break," Textos para discussão 314, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  12. Goetz, Linde & von Cramon-Taubadel, Stephan, 2008. "Considering threshold effects in the long-run equilibrium in a vector error correction model: An application to the German apple market," 2008 International Congress, August 26-29, 2008, Ghent, Belgium, European Association of Agricultural Economists 44247, European Association of Agricultural Economists.
  13. Peri, Massimo & Baldi, Lucia, 2010. "Vegetable oil market and biofuel policy: An asymmetric cointegration approach," Energy Economics, Elsevier, Elsevier, vol. 32(3), pages 687-693, May.
  14. Ihle, Rico & Amikuzuno, Joseph, 2009. "The Integration of Tomato Markets in Ghana with and without Direct Trade Flows," 2009 Conference, August 16-22, 2009, Beijing, China, International Association of Agricultural Economists 51402, International Association of Agricultural Economists.
  15. repec:ebl:ecbull:v:30:y:2010:i:1:p:265-273 is not listed on IDEAS
  16. Mendonca, Gui Pedro, 2008. "Structural Breaks, Regime Change and Asymmetric Adjustment: A Short and Long Run Global Approach to the Output/Unemployment Dynamics," MPRA Paper 14648, University Library of Munich, Germany.
  17. Gotz, Linde & Qiu, Feng & Gervais, Jean-Philippe & Glauben, Thomas, 2012. "Export Restrictions And Multiple Spatial Price Equilibria When International Prices Spike: Export Quotas For Wheat In Ukraine," 2012: New Rules of Trade?, December 2012, San Diego, California, International Agricultural Trade Research Consortium 143179, International Agricultural Trade Research Consortium.
  18. Stephens, Emma C. & Mabaya, Edward T., 2008. "Spatial Price Adjustment with and without Trade," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 6538, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  19. Markus Eberhardt, 2013. "Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing," Discussion Papers 2013/06, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  20. Götz, Linde & Qiu, Feng & Gervais, Jean-Philippe & Glauben, Thomas, 2013. "Export Restrictions and Multiple Spatial Price Equilibria: Export Quotas for Wheat in Ukraine," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156135, German Association of Agricultural Economists (GEWISOLA).
  21. Gotz, Linde & Qiu, Feng & Glauben, Thomas, 2012. "The Law of One Price under State-Dependent Policy Intervention: An Application to the Ukrainian Wheat Market," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington, Agricultural and Applied Economics Association 124904, Agricultural and Applied Economics Association.
  22. Vanessa Berenguer Rico & Jesús Gonzalo, 2013. "Co-summability from linear to non-linear cointegration," Economics Working Papers we1312, Universidad Carlos III, Departamento de Economía.
  23. 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.

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