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Estimation Of Nonlinear Error Correction Models

  • Hwan Seo, Myung

Asymptotic theory for the estimation of nonlinear vector error correction models that exhibit regime-specific short-run dynamics is developed. In particular, regimes are determined by the error correction term, and the transition between regimes is allowed to be discontinuous, as in, e.g., threshold cointegration. Several nonregular problems are resolved. First of all, consistency—square root n consistency for the cointegrating vector β —is established for the least squares estimation of this general class of models. Second, the convergence rates are obtained for the least squares of threshold cointegration, which are n 3/2 and n for β and γ , respectively, where γ denotes the threshold parameter. This fast rate for β in itself is of practical relevance because, unlike in smooth transition models, the estimation error in β does not affect the estimation of short-run parameters. We also derive asymptotic distributions for the smoothed least squares estimation of threshold cointegration.

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Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 27 (2011)
Issue (Month): 02 (April)
Pages: 201-234

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Handle: RePEc:cup:etheor:v:27:y:2011:i:02:p:201-234_00
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  1. de Jong, Robert M., 2001. "Nonlinear estimation using estimated cointegrating relations," Journal of Econometrics, Elsevier, vol. 101(1), pages 109-122, March.
  2. Saikkonen, Pentti, 2005. "Stability results for nonlinear error correction models," Journal of Econometrics, Elsevier, vol. 127(1), pages 69-81, July.
  3. Corradi, V. & Swanson, N. & White, H., 1996. "Testing for Stationarity-Ergodicity and for Comovements Between Nonlinear Discrete Time Markov Processes," Papers 4-96-6, Pennsylvania State - Department of Economics.
  4. Zacharias Psaradakis & Martin Sola & Fabio Spagnolo, 2004. "On Markov error-correction models, with an application to stock prices and dividends," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 69-88.
  5. Granger, Clive W. J. & Terasvirta, Timo, 1993. "Modelling Non-Linear Economic Relationships," OUP Catalogue, Oxford University Press, number 9780198773207, March.
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