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Autoregressive conditional root model

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Abstract

In this paper we develop a time series model which allows long-term disequilibriums to have epochs of non-stationarity, giving the impression that long term relationships between economic variables have temporarily broken down, before they endogenously collapse back towards their long term relationship. This autoregressive root model is shown to be ergodic and covariance stationary under some rather general conditions. We study how this model can be estimated and tested, developing appropriate asymptotic theory for this task. Finally we apply the model to assess the purchasing power parity relationship.

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  • Anders Rahbek & Neil Shephard, 2001. "Autoregressive conditional root model," Economics Papers 2002-W7, Economics Group, Nuffield College, University of Oxford, revised 01 Feb 2002.
    • Handle: RePEc:nuf:econwp:0207
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    File URL: http://www.nuff.ox.ac.uk/economics/papers/2002/w7/acr.pdf
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    Cited by:

    1. Angelos Kanas, 2009. "Real exchange rate, stationarity, and economic fundamentals," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 33(4), pages 393-409, October.
    2. Arie Preminger & Uri Ben-zion & David Wettstein, 2007. "The extended switching regression model: allowing for multiple latent state variables," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(7), pages 457-473.
    3. Angelos Kanas, 2009. "Real exchange rates and developing countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 280-299.
    4. Adusei Jumah & Robert M. Kunst, 2016. "Optimizing time-series forecasts for inflation and interest rates using simulation and model averaging," Applied Economics, Taylor & Francis Journals, vol. 48(45), pages 4366-4378, September.
    5. Frédérique Bec & Anders Rahbek, 2004. "Vector equilibrium correction models with non-linear discontinuous adjustments," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 628-651, December.
    6. Kanas, Angelos, 2006. "Purchasing Power Parity and Markov Regime Switching," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1669-1687, September.
    7. Bec, Frederique & Guay, Alain & Guerre, Emmanuel, 2008. "Adaptive consistent unit-root tests based on autoregressive threshold model," Journal of Econometrics, Elsevier, vol. 142(1), pages 94-133, January.
    8. Sarno, Lucio & Thornton, Daniel L & Valente, Giorgio, 2005. "Federal Funds Rate Prediction," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 449-471, June.
    9. Kaliva, Kasimir & Koskinen, Lasse, 2008. "Stock market bubbles, inflation and investment risk," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 592-603, June.
    10. repec:hal:journl:peer-00732535 is not listed on IDEAS
    11. Saikkonen, Pentti, 2005. "Stability results for nonlinear error correction models," Journal of Econometrics, Elsevier, vol. 127(1), pages 69-81, July.
    12. Gary Koop & Simon M. Potter, 2007. "A flexible approach to parametric inference in nonlinear time series models," Staff Reports 285, Federal Reserve Bank of New York.
    13. Rezitis, A.N. & Ahammad, S.M., 2015. "Investigating Agricultural Production Relations across Bangladesh, India and Pakistan Using Vector Error Correction and Markov-Switching Models," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 28(1).

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