Threshold Effects in Cointegrating Relationships

21 Pages Posted: 24 Nov 2006

See all articles by Jesús Gonzalo

Jesús Gonzalo

Universidad Carlos III de Madrid

Jean-Yves Pitarakis

University of Southampton - Division of Economics

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

Gonzalo, Jesus and Pitarakis, Jean-Yves, Threshold Effects in Cointegrating Relationships. Oxford Bulletin of Economics and Statistics, Vol. 68, No. S1, pp. 813-833, December 2006, Available at SSRN: https://ssrn.com/abstract=947013 or http://dx.doi.org/10.1111/j.1468-0084.2006.00458.x

Jesus Gonzalo (Contact Author)

Universidad Carlos III de Madrid ( email )

E-28903 Getafe (Madrid)
Spain

Jean-Yves Pitarakis

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44-23-80592631 (Phone)
+44-23-80593858 (Fax)

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