Non-linear error correction, asymmetric adjustment and cointegration
This paper has three main components. First, it outlines a model of nonlinear error correction (NEC) in which the linear error correction term a'Xt (the vector time series Xt is cointegrated, a is the cointegrating vector) is replaced by the nonlinear term g(a'X),ˇ where g(.) is a nonlinear function. Second, several types of asymmetries are discussed. The NEC model is shown to have an underlying structural model in the form of an adjustment cost model, with asymmetric adjustment costs. The implications for the NEC model of trending targets are explained. Third, it is shown that nonlinear error correction is present in a trivariate series of UK employment, wage, and capital stock.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Herman J. Bierens & A. R. Gallant (ed.), 1997. "Nonlinear Models," Books, Edward Elgar Publishing, volume 0, number 878, March.
- Bewley, R. A., 1979. "The direct estimation of the equilibrium response in a linear dynamic model," Economics Letters, Elsevier, vol. 3(4), pages 357-361.
- J. P. Gould, 1968. "Adjustment Costs in the Theory of Investment of the Firm," Review of Economic Studies, Oxford University Press, vol. 35(1), pages 47-55.
- Engle, Robert & Granger, Clive, 2015.
"Co-integration and error correction: Representation, estimation, and testing,"
Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- Phillips, P C B, 1991.
"Optimal Inference in Cointegrated Systems,"
Econometric Society, vol. 59(2), pages 283-306, March.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Pfann, Gerald A. & Verspagen, Bart, 1989. "The structure of adjustment costs for labour in the Dutch manufacturing sector," Economics Letters, Elsevier, vol. 29(4), pages 365-371.
- Alvaro Escribano & Santiago Mira, 2001.
"Nonlinear error correction models,"
Documentos de trabajo conjunto ULL-ULPGC
2001-03, Facultad de Ciencias Económicas de la ULPGC.
- Mira, Santiago & Escribano, Álvaro, 1997. "Nonlinear error correction models," DES - Working Papers. Statistics and Econometrics. WS 6206, Universidad Carlos III de Madrid. Departamento de Estadística.
- Hansen, Lars Peter & Sargent, Thomas J., 1980.
"Formulating and estimating dynamic linear rational expectations models,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 2(1), pages 7-46, May.
- Lars Peter Hansen & Thomas J. Sargent, 1979. "Formulating and estimating dynamic linear rational expectations models," Working Papers 127, Federal Reserve Bank of Minneapolis.
- Pfann, Gerard A., 1996. "Factor demand models with nonlinear short-run fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 315-331.
- Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-29, May.
- Peter C.B. Phillips & Sam Ouliaris, 1987.
"Asymptotic Properties of Residual Based Tests for Cointegration,"
Cowles Foundation Discussion Papers
847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
- Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
- PFANN, Gerard & PALM, Franz, 1992.
"Asymmetric adjustment costs in non-linear labour demand models for the Netherlands and UK manufacturing sectors,"
CORE Discussion Papers
1992017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Gerard A. Pfann & Franz C. Palm, 1993. "Asymmetric Adjustment Costs in Non-linear Labour Demand Models for the Netherlands and U.K. Manufacturing Sectors," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 397-412.
- PFANN, Gerard A. & PALM, Franz C., . "Asymmetric adjustment costs in non-linear labour demand models for the Netherlands and U.K. manufacturing sectors," CORE Discussion Papers RP 1044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Dolado, J. & Galbraith, J.W. & Banerjee, A., 1989. "Estimating Euler Equations With Integrated Series," Economics Series Working Papers 9981, University of Oxford, Department of Economics.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Breusch, Trevor S & Wickens, Michael R., 1987. "Dynamic Specification, the Long Run and the Estimation of Transformed Regression Models," CEPR Discussion Papers 154, C.E.P.R. Discussion Papers.
- Novales, Alfonso, 1990. "Solving Nonlinear Rational Expectations Models: A Stochastic Equilibrium Model of Interest Rates," Econometrica, Econometric Society, vol. 58(1), pages 93-111, January.
- Hylleberg, Svend & Mizon, Grayham E, 1989. "Cointegration and Error Correction Mechanisms," Economic Journal, Royal Economic Society, vol. 99(395), pages 113-25, Supplemen.
- Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
- Franz C. PALM & Gerard A. PFANN, 1991. "Interrelation, Structural Changes and Cointegration in a Model for Manufacturing Demand in the Netherlands," Discussion Papers (REL - Recherches Economiques de Louvain) 1991031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Escribano, A., 1987. "Error-correction systems: nonlinear adjustments to linear long-run relationships," CORE Discussion Papers 1987030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:15:y:1998:i:2:p:197-216. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.