ADL tests for threshold cointegration

In this article, we propose new tests for threshold cointegration using an autoregressive distributed lag (ADL) model. The indicators in the threshold model can adopt either a nonstationary or stationary threshold variable. The cointegrating vector is not prespecified in this article. We adopt a supremum Wald type test to account for the so-called Davies (1987, Biometrika 74,33) problem. The asymptotic null distributions of the proposed tests are free of nuisance parameters. As such, a bootstrap procedure is not required and the critical values of the proposed tests are tabulated. Monte Carlo experiments show good finite-sample performance.