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Threshold effects In multivariate error correction models

Threshold effects In multivariate error correction models
Threshold effects In multivariate error correction models
In this paper we propose a testing procedure for assessing the presence of threshold effects in nonstationary Vector autoregressive models with or without cointegration. Our approach involves first testing whether the long run impact matrix characterising the VECM type representation of the VAR switches according to the magnitude of some threshold variable and is valid regardless of whether the system is purely I(1), I(1) with cointegration or stationary. Once the potential presence of threshold effects is established we subsequently evaluate the cointegrating properties of the system in each regime through a model selection based approach whose asymptotic and finite sample properties are also established. This subsequently allows us to introduce a novel non-linear permanent and transitory decomposition of the vector process of interest.
502
University of Southampton
Gonzalo, Jesùs
0ec956ab-f13e-4466-bff4-4b2923290ae5
Pitarakis, Jean-Yves
ee5519ae-9c0f-4d79-8a3a-c25db105bd51
Gonzalo, Jesùs
0ec956ab-f13e-4466-bff4-4b2923290ae5
Pitarakis, Jean-Yves
ee5519ae-9c0f-4d79-8a3a-c25db105bd51

Gonzalo, Jesùs and Pitarakis, Jean-Yves (2005) Threshold effects In multivariate error correction models (Discussion Papers in Economics and Econometrics, 502, 2005) University of Southampton 39pp.

Record type: Monograph (Discussion Paper)

Abstract

In this paper we propose a testing procedure for assessing the presence of threshold effects in nonstationary Vector autoregressive models with or without cointegration. Our approach involves first testing whether the long run impact matrix characterising the VECM type representation of the VAR switches according to the magnitude of some threshold variable and is valid regardless of whether the system is purely I(1), I(1) with cointegration or stationary. Once the potential presence of threshold effects is established we subsequently evaluate the cointegrating properties of the system in each regime through a model selection based approach whose asymptotic and finite sample properties are also established. This subsequently allows us to introduce a novel non-linear permanent and transitory decomposition of the vector process of interest.

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e-pub ahead of print date: 2005

Identifiers

Local EPrints ID: 34547
URI: https://eprints.soton.ac.uk/id/eprint/34547
PURE UUID: 18a43690-203f-4b8d-8b44-8a087d2f2d55
ORCID for Jean-Yves Pitarakis: ORCID iD orcid.org/0000-0002-6305-7421

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Date deposited: 16 May 2006
Last modified: 25 May 2019 00:34

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Contributors

Author: Jesùs Gonzalo

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