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Threshold Effects in Cointegrating Relationships

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  • Jesús Gonzalo
  • Jean‐Yves Pitarakis

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.

Suggested Citation

  • Jesús Gonzalo & Jean‐Yves Pitarakis, 2006. "Threshold Effects in Cointegrating Relationships," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(s1), pages 813-833, December.
  • Handle: RePEc:bla:obuest:v:68:y:2006:i:s1:p:813-833
    DOI: 10.1111/j.1468-0084.2006.00458.x
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    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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