Structural breaks in error correction models

Article Abstract:

The study concentrated on the shift of long-run or equilibrium relations in error correction models during a change of the constant term over the sample, which implied a change in the constant term of the long-run equilibrium relation between the variable levels. The scope of the research dealt only with shifts in the constant term and formulated methods for measuring the residuals of long-run equilibrium relations when changes in the constant term occur.

Research, Error analysis (Mathematics)

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Transaction costs and non-linear adjustment towards equilibrium in the US treasury bill market

Article Abstract:

The adjustment process in treasury bills is shown to be non-linear and dependent on a measure of market equilibrium. Transaction costs affecting yield movements in the treasury bill market are analyzed using hypothetical models of non-linear error correction. Two types of non-linear error correction models, a threshold error correction type and another, which generalizes the threshold model, are evaluated and compared.

Analysis, Government securities, Treasury securities

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Tests for cointegration in models with regime and trend shifts

Article Abstract:

A general model that allows for a trend and a regime shift in cointegration is proposed. The model extends the work on the possibility of a shift in the trend in the context of unit root testing. Simulation models are used to compute for critical values since no closed-form solutions for the limiting distributions are available. Statisticians are reminded that the null hypothesis is no cointegration.

Testing, Integration, Functional, Functional integration (Mathematics)

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