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Author: Walter Enders
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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The Engle-Granger test for cointegration is extended by assuming that the error correction terms are asymmetric. Two variants are considered: a simple threshold autoregressive (TAR) model, where the positive and negative disequilibria are the error corrections, and the momentum threshold autoregressive model (M-TAR),where positive and negative changes in the disequilibria are the error corrections. The M-TAR model, in particular, has good power over the Engle-Granger test. We also consider an application where we test for cointegration between long and short US interest rates. Conventional cointegration testing (i.e., Engle-Granger, Johansen) concludes that interest rates are not cointegrated while we do find cointegration in the presence of asymmetric adjustment. We provide an economic rationale for such a finding.
Author: Walter Enders
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
The Engle-Granger test for cointegration is extended by assuming that the error correction terms are asymmetric. Two variants are considered: a simple threshold autoregressive (TAR) model, where the positive and negative disequilibria are the error corrections, and the momentum threshold autoregressive model (M-TAR),where positive and negative changes in the disequilibria are the error corrections. The M-TAR model, in particular, has good power over the Engle-Granger test. We also consider an application where we test for cointegration between long and short US interest rates. Conventional cointegration testing (i.e., Engle-Granger, Johansen) concludes that interest rates are not cointegrated while we do find cointegration in the presence of asymmetric adjustment. We provide an economic rationale for such a finding.
Author: Karsten Schweikert
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Daniel Charles Harper
Publisher:
ISBN:
Category : Econometrics
Languages : en
Pages : 180
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Author: Kari Heimonen
Publisher:
ISBN: 9789513913977
Category :
Languages : en
Pages : 17
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Author: Pin Johnny Chung
Publisher:
ISBN:
Category :
Languages : en
Pages : 183
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This study utilized monthly averages of daily rates for the 10-year constant maturity Treasury note, the Ibbotson Bond Index with maturity of 20-year Treasury Index, and Moody's Aaa and Baa seasoned bond indices to investigate the threshold behavior of interest rates pairs. The data covered the period from January 1960 to December 1997, with a total of 456 observations for each variable. Three (Lo-Zivot 2001, Hansen-Seo 2002, and Enders-Siklos 2001) different non-linear, discontinuous, asymmetric time-series econometric alternatives were applied to investigate the dynamics of the four interest rates pairs. Forecasting accuracy evaluation was utilized for model evaluation by applying one-step-ahead up to six-step-ahead forecasts. Among the findings, it was ascertained that interest spreads are stationary, yet the speeds of adjustment are asymmetric. In a bivariate setting, all of the interest rates pairs followed the threshold cointegration behavior. All the interest rates pairs were shown to be threshold cointegrated. In general, the adjustment speeds were asymmetric and, especially, the threshold estimates were asymmetric in a three-regime environment. Long run equilibrium relationships existed between Moody's corporate bond indices and Treasury note and Ibbotson bond index. In general, for a one percent increase in Treasury rates (either Treasury note or Ibbotson index), in the long run, it will generate a more than one percent increase in corporate bond indices (Aaa or Baa). Furthermore, the Baa bond index was shown to have a greater sensitivity to interest rate changes than the Aaa bond index. For the model evaluation side, one-step-ahead forecast to six-step-ahead forecast performance evaluations were conducted for the threshold cointegration models and the counterpart of the linear cointegration models. The results showed that no one particular threshold cointegration model dictated the overall forecasting accuracy. For different interest rates pairs under consideration, different threshold cointegration models offered a better fit. Moreover, all of the linear cointegration models performed relatively less accurate than the threshold cointegration models, which reinforce the empirical applications of the threshold cointegration models.
Author: Traore, Fousseini
Publisher: Intl Food Policy Res Inst
ISBN:
Category : Political Science
Languages : en
Pages : 44
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The analysis of price transmission plays a key role in understanding markets integration. This helps identify the nature of the relationship between geographically distant markets and cross-commodity price transmission, as well as the impact of liberalization policies and the identification of regions exposed to systemic shocks. This technical note contributes to the debate between symmetric and asymmetric price transmission and proposes to present the traditional and new approaches for detecting threshold effects in price transmission while focusing on their advantages and limitations. There is no one-size-fits-all method to detect threshold effects in price transmission. Experts need to select a combination of elements (context of study, the economy under consideration, data availability…) to justify the relevancy of their choice. Beyond the presentation of the methods for detecting thresholds in price transmission, we perform an application in the case of the rice market in Senegal. The results support the evidence of an asymmetric price transmission between world and domestic prices in the short-run and a symmetric transmission in the long-run.
Author: Janelle M. Mann
Publisher:
ISBN:
Category :
Languages : en
Pages : 342
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This thesis develops a new methodological approach to test for threshold cointegration. It determines the threshold locations, the number of thresholds, and tests the null hypothesis of a unit root against the alternative of a stationary threshold process using p-values based on a residual-based block bootstrap for the nonlinear threshold autoregressive specification (TAR). Chapter 2 describes the methodological approach which combines Gonzalo and Pitarakis (2002) and Seo (2008). Chapter 3 employs Monte Carlo analysis to investigate the properties of the new approach. The results indicate that the methodology performs well and is suited for application to real world time series. Chapter 4 applies the new approach in combination with a threshold error correction model (ECM) to determine the spatial relationships among three crude oil prices: WTI, Brent, and Oman, from 2008 through 2011. The results indicate that the crude oil benchmarks are tied together by a long run relationship; however, the recent reversal in price premium between the two main crude oil benchmarks, WTI and Brent, is an anomaly that has resulted in a time period in which the series do not have a tendency to move back toward their long run relationship. Chapter 5 applies the new approach, in combination with threshold ECMs, with regime switches being triggered by the upstream markup margin to determine the vertical relationships between the crude oil, rack, and retail gasoline prices for six cities across North America. The results using both daily and weekly data between 2008 and 2011 suggest that upstream and downstream prices are cointegrated. There is evidence of band-TAR in which the crude, rack, and retail prices are free to diverge until the markup margin is squeezed or stretched beyond a lower or upper threshold. This suggests that abnormally high margins cannot be sustained indefinitely. The threshold ECMs indicate that there is no systematic relationship between the speed of adjustment and the markup margin; however, the residuals exhibit a leverage effect in which volatility and price changes are negatively correlated. Chapter 6 concludes with a summary of Chapters 2 through 5 and makes suggestions for future research.
Author: Biyong Xu
Publisher:
ISBN:
Category :
Languages : en
Pages : 184
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Book Description
According to the Fisher hypothesis, the nominal interest rate moves one-to-one with the rate of inflation anticipated by the public, and the expected real rate of return is constant over time. The hypothesis implies that in the long run there is a one-to-one correspondence between changes of the nominal interest rate and the changes of inflation, which is often referred to as the Fisher effect in the literature. To test the Fisher hypothesis, most of the previous empirical studies are using linear models in time series, which was predicated on the assumption that the path of adjustment towards long-run equilibrium is necessarily symmetric. The assumption of symmetric adjustment, however, may not be warranted. It is frequently argued that that some fundamental economic variables, including the real GNP and the unemployment rate, display asymmetric adjustment paths, which cannot be properly modeled by linear models. Since the real interest rate is closely related to these variables, it may also follow an asymmetric adjustment path. In this dissertation, we study the Fisher relationship within a fresh nonlinear framework. The dissertation is filling several blanks in the empirical literature. First, we test the stationarity of the nominal interest rate and the inflation rate under a nonlinear threshold autoregressive model, and it seems a unit root can not be rejected for most of countries under our study. Second, a two-stage threshold cointegration analysis has been applied to test for the presence of nonlinearity in the long-term equilibrium between the nominal interest rate and the inflation rate. We find some evidences nonlinearity in the Fisher relationship. Third, a two-regime threshold vector error correction model (TVECM) is used to explicitly model the nonlinearity and encompassing tests are carried out to compare the out-of-sample forecast efficiency of linear and nonlinear models. Our study seems to support the existence of the Fisher effect in the long run, which is consistent with previous studies.
Author: Gilles Dufrénot
Publisher: Springer Science & Business Media
ISBN: 1475736150
Category : Business & Economics
Languages : en
Pages : 319
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Book Description
This book is an introductory exposition of different topics that emerged in the literature as unifying themes between two fields of econometrics of time series, namely nonlinearity and nonstationarity. Papers on these topics have exploded over the last two decades, but they are rarely ex amined together. There is, undoubtedly, a variety of arguments that justify such a separation. But there are also good reasons that motivate their combination. People who are reluctant to a combined analysis might argue that nonlinearity and nonstationarity enhance non-trivial problems, so their combination does not stimulate interest in regard to plausibly increased difficulties. This argument can, however, be balanced by other ones of an economic nature. A predominant idea, today, is that a nonstationary series exhibits persistent deviations from its long-run components (either deterministic or stochastic trends). These persistent deviations are modelized in various ways: unit root models, fractionally integrated processes, models with shifts in the time trend, etc. However, there are many other behaviors inherent to nonstationary processes, that are not reflected in linear models. For instance, economic variables with mixture distributions, or processes that are state-dependent, undergo episodes of changing dynamics. In models with multiple long-run equi libria, the moving from an equilibrium to another sometimes implies hys teresis. Also, it is known that certain shocks can change the economic fundamentals, thereby reducing the possibility that an initial position is re-established after a shock (irreversibility).
Author: Myunghwan Seo
Publisher:
ISBN:
Category :
Languages : en
Pages : 92
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