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ESTIMATION OF NONLINEAR ERROR CORRECTION MODELS

Published online by Cambridge University Press:  27 August 2010

Myung Hwan Seo
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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.

Type
Research Article
Information
Econometric Theory , Volume 27 , Issue 2 , April 2011 , pp. 201 - 234
Copyright
Copyright © Cambridge University Press 2010

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Footnotes

This research was supported through a grant from the Economic and Social Science Research Council. I thank the co-Editor and a referee, Anders Rahbek, and seminar participants in numerous places.

References

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