A threshold cointegration test with increased power

Steven Cook

Mathematics and Computers in Simulation (MATCOM), 2007, vol. 73, issue 6, 386-392

Abstract: The low power of threshold, or asymmetric, cointegration tests is addressed. A new test is developed which combines momentum-threshold autoregression (MTAR) and local-to-unity detrending via generalised least squares (GLS). Critical values for the newly proposed GLS-MTAR threshold cointegration test are provided under alternative decisions regarding the deterministic terms employed when implementing the test. Simulation analysis of the test shows it to provide a substantial increase in power relative to the previously proposed MTAR threshold cointegration test of Enders and Siklos [W. Enders, P. Siklos, Cointegration and threshold adjustment, J. Business Econ. Statist. 19 (2001) 166–176].

Keywords: Cointegration; Threshold adjustment; Asymmetry; Monte Carlo simulation; Test power (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:73:y:2007:i:6:p:386-392

DOI: 10.1016/j.matcom.2006.08.002

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