System-Equation ADL Tests for Threshold Cointegration
نویسنده
چکیده
In this paper we develop new system-equation tests for threshold cointegration based on a threshold vector autoregressive distributed lag (ADL) model. The proposed tests do not require weak exogeneity, and can be applied when cointegrating vector is unknown. The asymptotic null distributions of the tests are expressed as functionals of two-parameter Brownian motion. The distributions are free of nuisance parameters, and critical values are tabulated. Monte Carlo simulations show good finite-sample performances. The new tests are illustrated with long term and short term interest rates. We show that the system-equation model can accommodate more types of asymmetry than the single-equation model.
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System-Equation ADL Test for Threshold Cointegration with an Application to the Term Structure of Interest Rates
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