Threshold cointegration and nonlinear adjustment between goods and services inflation in the United States |
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Authors: | Vicente Esteve, Salvador Gil-Pareja, Jos Antonio Martí nez-Serrano,Rafael Llorca-Vivero |
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Affiliation: | aUniversidad de Valencia, Spain |
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Abstract: | In this paper, we model the long-run relationship between goods and services inflation for the United States over the period 1968:1–2003:3. Our empirical methodology makes use of recent developments on threshold cointegration that consider the possibility of a nonlinear relationship between the two inflation series. According to our results, the null hypothesis of linear cointegration would be rejected in favor of a two-regime threshold cointegration model. Consequently, we could expect a cointegrating relationship only when the divergence between services inflation and goods inflation is above the threshold point estimate. |
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Keywords: | Inflation Goods Services Threshold cointegration |
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