Threshold cointegration and nonlinear adjustment between goods and services inflation in the United States

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. (c) 2006 Elsevier B.V. All rights reserved.