Working Papers,
Örebro University, School of Business

Abstract: 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.

Keywords: nonlinear cointegration; smooth transition; F-type test; threshold coin- tegration

JEL-codes: C00; C12; C32; C52

55 pages, February 13, 2012

Full text files

wp-6-2012---rev-2013.pdf  

Download statistics

• Örebro University, School of Business
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:oruesi:2012_006This page generated on 2024-11-09 04:36:07.