 IV threshold cointegration tests and the Taylor ruleWalter Enders, Kyung So Im, Junsoo Lee () and Mark Strazicich () Economic Modelling, 2010, vol. 27, issue 6, 1463-1472 Abstract: The usual cointegration tests often entail nuisance parameters that hinder precise inference. This problem is even more pronounced in a nonlinear threshold framework when stationary covariates are included. In this paper, we propose new threshold cointegration tests based on instrumental variables estimation. The newly suggested IV threshold cointegration tests have standard distributions that do not depend on any stationary covariates. These desirable properties allow us to formally test for threshold cointegration in a nonlinear Taylor rule. We perform this analysis using real-time U.S. data for several sample periods from 1970 to 2005. In contrast to the linear model, we find strong evidence of cointegration in a nonlinear Taylor rule with threshold effects. Overall, we find that the Federal Reserve is far more policy active when inflation is high than when inflation is low. In addition, we reaffirm the notion that the response to counteract high inflation was weakest in the 1970s and strongest in the Greenspan era. Keywords: Taylor; rule; Threshold; cointegration; IV; tests (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:27:y:2010:i:6:p:1463-1472 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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