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Testing for Smooth Transition Nonlinearity in Adjustments of Cointegrating Systems

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Author Info
Nedeljkovic, Milan (Department of Economics,University of Warwick)
Abstract

This paper studies testing for the presence of smooth transition nonlinearity in adjustment parameters of the vector error correction model. We specify the generalized model with multiple cointegrating vectors and different transition functions across equations. Given that the nonlinear model is highly complex, this paper proposes an optimal LM test based only on estimation of the linear model. The null asymptotic distribution is derived using empirical process theory and since the transition parameters of the model cannot be identified under the null hypothesis bootstrap procedures are used to approximate the limit. Monte Carlo simulations indicate a good performance of the test.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/publications/twerp_876.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 876.

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Length: 39 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:876

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Related research
Keywords: Nonlinearity ; Cointegration ; Empirical process theory ; Bootstrap;

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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