IV threshold cointegration tests and the Taylor rule
- ASU Author/Contributor (non-ASU co-authors, if there are any, appear on document)
- Mark Strazicich Ph.D., Professor (Creator)
- Institution
- Appalachian State University (ASU )
- Web Site: https://library.appstate.edu/
Abstract: ABSTRACT
The usual cointegration tests often entail nuisance parameters that hinder precise inference. This problem is even more pronounced in a nonlinear threshold framework when stationary covariates are included. In this paper, we propose new threshold cointegration tests based on instrumental variables estimation. The newly suggested IV threshold cointegration tests have standard distributions that do not depend on any stationary covariates. These desirable properties allow us to formally test for threshold cointegration in a nonlinear Taylor rule. We perform this analysis using real-time U.S. data for several sample periods from 1970 to 2005. In contrast to the linear model, we find strong evidence of cointegration in a nonlinear Taylor rule with threshold effects. Overall, we find that the Federal Reserve is far more policy active when inflation is high than when inflation is low. In addition, we reaffirm the notion that the response to counteract high inflation was weakest in the 1970s and strongest in the Greenspan era.
IV threshold cointegration tests and the Taylor rule
PDF (Portable Document Format)
625 KB
Created on 5/3/2013
Views: 3689
Additional Information
- Publication
- Enders, W., So Im, K., Lee, J., and Strazicich, M.C. (2010). IV Threshold Cointegration Tests and the Taylor Rule. Economic Modelling, 27(6): 1463-1472 (Nov 2010). Published by Elsevier (ISSN: 0264-9993). doi:10.1016/j.econmod.2010.07.013
- Language: English
- Date: 2010