Buffered vector error-correction models: An application to the U.S. Treasury bond rates

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Abstract

This paper extends the buffered autoregressive model to the buffered vector error-correction model (VECM). Least squares estimation and a reduced-rank estimation are discussed, and the consistency of the estimators on the delay parameter and threshold parameters is derived. We also propose a supWald test for the presence of buffer-type threshold effect. Under the null hypothesis of no threshold, the supWald test statistic converges to a function of Gaussian process. A bootstrap method is proposed to obtain the p-value for the supWald test. We investigate the effectiveness of our methods by simulation studies. We apply our model to study the monthly Federal bond rates of United States. We find the evidences of buffering regimes and the asymmetric error-correction effect. Copyright © 2020 Walter de Gruyter GmbH, Berlin/Boston.
Original languageEnglish
Article number20190047
JournalStudies in Nonlinear Dynamics and Econometrics
Early online date08 Oct 2020
DOIs
Publication statusE-pub ahead of print - 08 Oct 2020

Citation

Lu, R., & Yu, P. L. H. (2020). Buffered vector error-correction models: An application to the U.S. Treasury bond rates. Studies in Nonlinear Dynamics and Econometrics. Advance online publication. doi: 10.1515/snde-2019-0047

Keywords

  • Bootstrap method
  • Cointegration
  • SupWald test
  • Threshold model
  • Vector error-correction model

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