A threshold cointegration test with increased power

✍ Scribed by Steven Cook

• Book ID: 104042255
• Publisher: Elsevier Science
• Year: 2007
• Tongue: English
• Weight: 136 KB
• Volume: 73
• Category: Article
• ISSN: 0378-4754
• DOI: 10.1016/j.matcom.2006.08.002

✦ Synopsis

The low power of threshold, or asymmetric, cointegration tests is addressed. A new test is developed which combines momentumthreshold autoregression (MTAR) and local-to-unity detrending via generalised least squares (GLS). Critical values for the newly proposed GLS-MTAR threshold cointegration test are provided under alternative decisions regarding the deterministic terms employed when implementing the test. Simulation analysis of the test shows it to provide a substantial increase in power relative to the previously proposed MTAR threshold cointegration test of Enders and Siklos [W. Enders, P. Siklos, Cointegration and threshold adjustment, J. Business Econ. Statist. 19 (2001) 166-176].