Large‐Dimensional Cointegrated Threshold Factor Models
The Global Term Structure of Interest Rates
Bibliographic Data
| ID | 21512675 |
|---|---|
| Authors | Daniel Abreu (Financial Conduct Authority London UK), Paulo M M Rodrigues (0000-0002-6469-4959, Banco de Portugal and Nova School of Business and Economics, Universidade NOVA de Lisboa Carcavelos Portugal, corresponding author) |
| Year | 2026 |
| Volume | 88 |
| Issue | 4 |
| Pages | 677-689 |
| Publication date | 2026-08-01 |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Oxford Bulletin of Economics and Statistics (JOURNAL) |
| Journal identifiers | ISSN: 0305-9049 • E-ISSN: 1468-0084 |
| Publisher | Wiley (PUBLISHER • GB) |
| DOI | 10.1111/obes.70082 |
| OpenAlex | W7160504209 |
| Language | EN |
| References cited | 49 |
In this paper we extend the two‐level factor model to account for cointegration between group‐specific factors in large datasets. We propose two nonlinear specifications: (i) a threshold vector error correction model (VECM) that allows for asymmetric adjustment across regimes; and (ii) a band VECM that captures state‐dependent adjustment which becomes active only when deviations from equilibrium exceed an inaction threshold. Monte Carlo simulations show that the proposed estimators perform well in finite samples, accurately recovering the cointegration relationship and the regime‐dependent adjustment mechanism in the designs considered. In an empirical application, we estimate a band factor VECM on a panel of government bond yields from multiple countries, extracting one global factor and two group‐specific factors associated with long‐ and short‐term maturities. The results provide evidence of discontinuous adjustment in the global term structure of interest rates, with stronger error correction during periods of larger deviations from the long‐run equilibrium
Cointegration · Error correction model · Estimator · Interest rate · Monte Carlo method · Nonlinear system · Global Financial Crisis and Policies · Italy: Economic History and Contemporary Issues · Monetary Policy and Economic Impact
Likelihood-Based Inference in Cointegrated Vector Autoregressive Models
Sample Splitting and Threshold Estimation
Inference When a Nuisance Parameter Is Not Identified Under the Null Hypothesis
Forecasting inflation
Threshold Cointegration
A Panic Attack on Unit Roots and Cointegration
Nowcasting
International Business Cycles
Determining the Number of Factors in Approximate Factor Models
Inferential Theory for Factor Models of Large Dimensions
Forecasting Using Principal Components From a Large Number of Predictors
Macroeconomic Forecasting Using Diffusion Indexes
Dynamic Hierarchical Factor Models
Determining the Number of Factors from Empirical Distribution of Eigenvalues
The Generalized Dynamic-Factor Model
Cointegration and Tests of Present Value Models
Statistical analysis of cointegration vectors
| Highly cited | No |
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