ABSTRACT
A double threshold Fractionally Integrated GARCH (1,?,1), model is used in order to investigate the threshold effects of commodity returns and return volatility. Using the term spread as the threshold variable, this study examines whether commodity returns and both short-term and long-term volatility persistence exhibit asymmetric patterns. The results show that commodity returns and their volatilities possess distinct patterns of non-linearity which are adequately modeled by a DT-FIGARCH(1,?,1) specification. The null hypothesis of symmetric coefficient sensitivity above and below the threshold level is rejected in virtually all cases. The long-memory parameters are found to be regime dependent and exhibit greater persistence in volatility during high term-spread (high inflationary) periods than during low term-spread (low inflationary) periods.
