Testing for two-regime threshold cointegration in vector error-correction models. (English) Zbl 1044.62092
Summary: This paper examines a two-regime vector error-correction model with a single cointegrating vector and a threshold effect in the error-correction term. We propose a relatively simple algorithm to obtain maximum likelihood estimation of the complete threshold cointegration model for the bivariate case. We propose a SupLM test for the presence of a threshold. We derive the null asymptotic distribution, show how to simulate asymptotic critical values, and present a bootstrap approximation. We investigate the performance of the test using Monte Carlo simulation, and find that the test works quite well. Applying our methods to the term structure model of interest rates, we find strong evidence for a threshold effect.
MSC:
| 62M10 | Time series, auto-correlation, regression, etc. in statistics (GARCH) |
| 62P05 | Applications of statistics to actuarial sciences and financial mathematics |
| 65C05 | Monte Carlo methods |
| 62E20 | Asymptotic distribution theory in statistics |
| 62P20 | Applications of statistics to economics |
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