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Time-varying threshold cointegration with an application to the Fisher hypothesis

Author

Listed:
  • Yang Lixiong

    (School of Management, Lanzhou University, Lanzhou, China)

Abstract

This paper extends the threshold cointegration model developed by Gonzalo, J., and J. Y. Pitarakis. 2006. “Threshold Effects in Cointegrating Relationships.” Oxford Bulletin of Economics & Statistics 68: 813–33 and Chen, H. 2015. “Robust Estimation and Inference for Threshold Models with Integrated Regressors.” Econometric Theory 31 (4): 778–810 to allow for a time-varying threshold, which is a function of candidate variables that affect the separation of regimes. We derive the asymptotic distribution of the proposed least-square estimator of the threshold, and study the convergence rate of the threshold estimator. We also suggest test statistics for threshold effect and threshold constancy. Monte Carlo simulations point out that the convergence rate of the threshold estimator is consistent with the asymptotic theory, and the proposed tests have good size and power properties. The empirical usefulness of the proposed model is illustrated by an application to the US data to investigate the Fisher hypothesis.

Suggested Citation

  • Yang Lixiong, 2022. "Time-varying threshold cointegration with an application to the Fisher hypothesis," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 26(2), pages 257-274, April.
  • Handle: RePEc:bpj:sndecm:v:26:y:2022:i:2:p:257-274:n:4
    DOI: 10.1515/snde-2018-0101
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    More about this item

    Keywords

    estimation; Fisher hypothesis; testing; threshold cointegration; time-varying threshold; C12; C13; C22; C51;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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