Regime-sensitive cointegration: the relationship between gold and silver

The presence of structural breaks in economic variables is one of the reasons why the cointegration analysis defined by Engle and Granger [4] is not always able to detect the existence of a long run relationship, even when this is supported by the economic theory. In such a view, Granger and Siklos [6] propose the concept of regime-sensitive cointegration. This paper presents further developments on regime-sensitive cointegration to investigate about the existence of a stable equilibrium relationship between the price of gold and silver over the period 1971-2004.