Testing for Linear Cointegration Against Smooth-Transition Cointegration

Arbeitspapier

This paper studies a smooth-transition (ST) type cointegration. The proposed ST cointegration allows for regime switching structure in a cointegrated system, and nests the linear cointegration developed by Engle and Granger (1987) and the threshold cointe- gration studied by Balke and Fomby (1997). Based on a class of vector ST cointegrating regression models, we develop F-type tests to examine linear cointegration against ST cointegration. The null asymptotic distributions of the tests with choosing various sta- tionary transition variables are derived. Finite-sample distributions of those tests are studied by Monto Carlo simulation. The small-sample performance of the tests are also included and it is shown that our F-type tests have a better power when the system contains a ST cointegration than that when the system is linearly cointegrated. Two empirical examples for the purchasing power parity (PPP) data are illustrated by apply- ing the testing procedures in this paper. It is found that, for each of them, there is no linear cointegration in the system, but there exits a ST cointegration in the system.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 6/2012

Classification and Topics

• Classification: Wirtschaft ; Mathematical and Quantitative Methods: General ; Hypothesis Testing: General ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Model Evaluation, Validation, and Selection
• Subject: nonlinear cointegration ; smooth transition ; F-type test ; threshold coin- tegration

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Li, Dao ; He, Changli
• Event: Veröffentlichung
• (who): Örebro University School of Business
• (where): Örebro
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/244480
• Last update: 10.03.2025, 11:43 AM CET