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Stationarity with Occasionally Binding Constraints

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  • James A. Duffy
  • Sophocles Mavroeidis
  • Sam Wycherley

Abstract

This paper studies a class of multivariate threshold autoregressive models, known as censored and kinked structural vector autoregressions (CKSVAR), which are notably able to accommodate series that are subject to occasionally binding constraints. We develop a set of sufficient conditions for the processes generated by a CKSVAR to be stationary, ergodic, and weakly dependent. Our conditions relate directly to the stability of the deterministic part of the model, and are therefore less conservative than those typically available for general vector threshold autoregressive (VTAR) models. Though our criteria refer to quantities, such as refinements of the joint spectral radius, that cannot feasibly be computed exactly, they can be approximated numerically to a high degree of precision. Our results also permit us to provide a treatment of unit roots and cointegration in the CKSVAR, for the case where the model is configured so as to generate linear cointegration.

Suggested Citation

  • James A. Duffy & Sophocles Mavroeidis & Sam Wycherley, 2023. "Stationarity with Occasionally Binding Constraints," Papers 2307.06190, arXiv.org.
    • Handle: RePEc:arx:papers:2307.06190
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    File URL: http://arxiv.org/pdf/2307.06190
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