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ADL tests for threshold cointegration

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  • Jing Li
  • Junsoo Lee

Abstract

In this article, we propose new tests for threshold cointegration using an autoregressive distributed lag (ADL) model. The indicators in the threshold model can adopt either a nonstationary or stationary threshold variable. The cointegrating vector is not prespecified in this article. We adopt a supremum Wald type test to account for the so‐called Davies (1987, Biometrika 74,33) problem. The asymptotic null distributions of the proposed tests are free of nuisance parameters. As such, a bootstrap procedure is not required and the critical values of the proposed tests are tabulated. Monte Carlo experiments show good finite‐sample performance.

Suggested Citation

  • Jing Li & Junsoo Lee, 2010. "ADL tests for threshold cointegration," Journal of Time Series Analysis, Wiley Blackwell, vol. 31(4), pages 241-254, July.
    • Handle: RePEc:bla:jtsera:v:31:y:2010:i:4:p:241-254
    DOI: 10.1111/j.1467-9892.2010.00659.x
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