Nedeljkovic, M. (Milan) (2008) Testing for smooth transition nonlinearity in adjustments of cointegrating systems. Working Paper. University of Warwick, Department of Economics, Coventry.

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Abstract

This paper studies testing for the presence of smooth transition nonlinearity in adjustment parameters of the vector error correction model. We specify the generalized model with multiple cointegrating vectors and different transition functions across equations. Given that the nonlinear model is highly complex, this paper proposes an optimal LM test based only on estimation of the linear model. The null asymptotic distribution is derived using empirical process theory and since the transition parameters of the model cannot be identified under the null hypothesis bootstrap procedures are used to approximate the limit. Monte Carlo simulations indicate a good performance of the test.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory Q Science > QA Mathematics
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Cointegration, Nonlinear theories, Statistical hypothesis testing, Time-series analysis, Bootstrap (Statistics)
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	October 2008
Number:	No.876
Number of Pages:	39
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/1341

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