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Estimation of nonlinear error correction models

By Myung Hwan Seo

Abstract

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 n3/2 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

Topics: HB Economic Theory
Publisher: Cambridge University Press
Year: 2011
DOI identifier: 10.1017/S026646661000023X
OAI identifier: oai:eprints.lse.ac.uk:33874
Provided by: LSE Research Online
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