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Threshold cointegration

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  • Nathan S. Balke
  • Thomas B. Fomby

Abstract

In this paper, the authors consider a model in which there is discontinuous adjustment to a long-run equilibrium. Here, the equilibrium error follows a threshold autoregression that is mean-reverting outside a given range and has a unit root inside the range. The authors suggest a two-step approach for examining threshold cointegration. They find that standard time series methods developed for testing for cointegration in the linear case work reasonably well when threshold cointegration is present. The authors then consider a 'sup-Wald' test of linearity that takes the double-threshold model as the alternative hypothesis. Copyright 1997 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Nathan S. Balke & Thomas B. Fomby, 1992. "Threshold cointegration," Working Papers 9209, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:9209
    Note: Published as: Balke, Nathan S. and Thomas B. Fomby (1997), "Threshold Cointegration," International Economic Review 38 (3): 627-645.
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    Other versions of this item:

    • Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-645, August.

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