Small sample improvements in the threshold cointegration test using residual-based moving block bootstrap

  • Authors:

  • Zheng Yang;Zheng Tian;Zixia Yuan

  • Affiliations:

  • Department of Applied Mathematics, Northwestern Polytechnical University, Xi'an 710072, China;Department of Applied Mathematics, Northwestern Polytechnical University, Xi'an 710072, China and National Key Laboratory of Pattern Recognition, Institute of Automation, Chinese Academy of Scienc ...;Department of Applied Mathematics, Northwestern Polytechnical University, Xi'an 710072, China

  • Venue:
  • Mathematics and Computers in Simulation
  • Year:
  • 2008

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Abstract

A residual-based moving block bootstrap procedure for testing the null hypothesis of linear cointegration versus cointegration with threshold effects is proposed. When the regressors and errors of the models are serially and contemporaneously correlated, our test compares favourably with the SupLM test proposed by Gonzalo and Pitarakis. Indeed, shortcomings of the former motivated the development of our test. The small sample performance of the bootstrap test is investigated by Monte Carlo simulations, and the results show that the test performs better than the SupLM test.