Threshold Effects in Cointegrating Relationships*

Jesus Gonzalo and Jean-Yves Pitarakis

Oxford Bulletin of Economics and Statistics, 2006, vol. 68, issue s1, 813-833

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.

Date: 2006
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https://doi.org/10.1111/j.1468-0084.2006.00458.x

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