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ESTIMATION OF NONLINEAR ERROR CORRECTIONMODELS

Published online by Cambridge University Press:  27 August 2010

Myung Hwan Seo
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Abstract

Asymptotic theory for the estimation of nonlinearvector error correction models that exhibitregime-specific short-run dynamics is developed. Inparticular, regimes are determined by the errorcorrection term, and the transition between regimesis allowed to be discontinuous, as in, e.g.,threshold cointegration. Several nonregular problemsare resolved. First of all, consistency—square rootn consistency for thecointegrating vector β—isestablished for the least squares estimation of thisgeneral class of models. Second, the convergencerates are obtained for the least squares ofthreshold cointegration, which aren3/2 andn for β andγ, respectively, whereγ denotes the thresholdparameter. This fast rate for β initself is of practical relevance because, unlike insmooth transition models, the estimation error inβ does not affect the estimationof short-run parameters. We also derive asymptoticdistributions for the smoothed least squaresestimation of threshold cointegration.

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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 fromthe Economic and Social Science Research Council.I thank the co-Editor and a referee, AndersRahbek, and seminar participants in numerousplaces.

References

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