Testing for cointegration with threshold adjustment in the presence of structural breaks

Arbeitspapier

In this paper, we develop new threshold cointegration tests with SETAR and MTAR adjustment allowing for the presence of structural breaks in the equilibrium equation. We propose a simple procedure to simultaneously estimate the previously unknown breakpoint and test the null hypothesis of no cointegration. Thereby, we extend the well-known residual-based cointegration test with regime shift introduced by Gregory and Hansen (1996a) to include forms of nonlinear adjustment. We derive the asymptotic distribution of the test statistics and demonstrate the finite-sample performance of the tests in a series of Monte Carlo experiments. We find a substantial decrease of power of the conventional threshold cointegration tests caused by a shift in the slope coefficient of the equilibrium equation. The proposed tests perform superior in these situations. An application to the 'rockets and feathers' hypothesis of price adjustment in the US gasoline market provides empirical support for this methodology.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Hohenheim Discussion Papers in Business, Economics and Social Sciences ; No. 07-2018

Classification and Topics

• Classification: Wirtschaft ; Hypothesis Testing: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Multiple or Simultaneous Equation Models: Truncated and Censored Models; Switching Regression Models ; Energy: Demand and Supply; Prices
• Subject: cointegration ; threshold autoregression ; structural breaks ; SETAR ; MTAR ; asymmetric price transmission

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schweikert, Karsten
• Event: Veröffentlichung
• (who): Universität Hohenheim, Fakultät Wirtschafts- und Sozialwissenschaften
• (where): Stuttgart
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/178506
• URN: urn:nbn:de:bsz:100-opus-14808
• Last update: 10.03.2025, 11:42 AM CET