IDEAS home Printed from
   My bibliography  Save this article

Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price


  • Lo, Ming Chien
  • Zivot, Eric


Previous studies investigating threshold behavior in real-exchange-rate and price difference data have used rather ad hoc statistical methods and have focused on univariate threshold models for relative prices. We utilize a general multivariate threshold cointegration model and develop a systematic testing and estimation strategy for this model, building on the work of others. Using Monte Carlo experiments, we systematically compare the use of univariate and multivariate techniques for testing threshold cointegration, estimating various threshold models, and testing specifications. We apply our methodology to a large set of U.S. disaggregated CPI data. We find evidence of threshold cointegration mainly for tradable goods. However, the type of threshold nonlinearity that we find generally does not support the transaction-cost view of commodity arbitrage.

Suggested Citation

  • Lo, Ming Chien & Zivot, Eric, 2001. "Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price," Macroeconomic Dynamics, Cambridge University Press, vol. 5(4), pages 533-576, September.
  • Handle: RePEc:cup:macdyn:v:5:y:2001:i:04:p:533-576_02

    Download full text from publisher

    File URL:
    File Function: link to article abstract page
    Download Restriction: no

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:macdyn:v:5:y:2001:i:04:p:533-576_02. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.