Testing for two-regime threshold cointegration in vector error-correction models

Bruce E. Hansen, Byeongseon Seo

Research output: Contribution to journalArticle

396 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)293-318
Number of pages26
JournalJournal of Econometrics
Volume110
Issue number2
DOIs
Publication statusPublished - 2002 Oct 1

    Fingerprint

Keywords

  • Bootstrap
  • Identification
  • Non-linear
  • Non-stationary
  • Term structure

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this