In this chapter, the methodology related to threshold error correction models is discussed. The aim of the chapter is to summarize several approaches to time series modelling using both a univariate case and a multivariate case. The concept of stationarity is crucial when a model specification is projected. When time series are stationary, then threshold autoregression models or threshold distributed lag models can be estimated. These models represent a framework for flexibly and describe associations showing potentially non-linear and delayed effects in time series data. On the other hand, however, when data exhibit non-stationarity, the non-linear cointegration approach is applied. In this case, the threshold effects around the long run path present in the Threshold Error Correction Model (TECM) are discussed. A modified method for testing for a threshold in TECM based on the Enders and Siklos approach is proposed. Furthermore, methods of statistical inference in the case of a threshold in both stationary and cointegrating spaces are discussed.
CITATION STYLE
Gałecki, M., & Osińska, M. (2019). Threshold error correction model: A methodological overview. In Economic Miracles in the European Economies (pp. 151–173). Springer International Publishing. https://doi.org/10.1007/978-3-030-05606-3_8
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