A Comment on Tests for Asymmetric Threshold Cointegration with an Application to the Term Structure: Cointegration Methods Matter

Natalie Hegwood and Markland Tuttle
Additional contact information
Natalie Hegwood: Sam Houston State University

Journal of Economic Insight, 2013, vol. 39, issue 1, 73-77

Abstract: Wohar and Sollis (2007) test for asymmetric threshold cointegration in the term structure of interest rates for several OECD countries. They use the Engle-Granger (1987) method to construct the error correction term, and this estimated error correction term is then used to test for asymmetric threshold cointegration. The Engle-Granger method is commonly used in the term structure and pass-through literature. However, we show that different cointegration tests and methods may potentially lead to different error correction terms. As noted by Cook (2008), the Engle-Granger method leads to severe downward bias in the long-run (cointegration) parameter. These parameters are then used in the second stage to test for asymmetries. We test for cointegration using the Engle-Granger and the Johansen (1991) methods. Using the same sample period for a subset of countries used in Wohar and Sollis, our results suggest substantial downward bias in the Engle-Granger method, which may potentially alter any asymmetric adjustment and/or threshold cointegration results.

JEL-codes: C22 E43 (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mve:journl:v:39:y:2013:i:1:p:73-77

Access Statistics for this article

Journal of Economic Insight is currently edited by Christopher Douglas and Joshua Lewer

More articles in Journal of Economic Insight from Missouri Valley Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Cullen Goenner ().