Nonlinear error correction models with an application to commodity prices
Brazilian Review of Econometrics
V 33, N 2, P 145-170, 02/10/2014Existing tests for nonlinearity in vector error correction models are highly intensive computationally
and have nuisance parameters in the asymptotic distribution, what calls for
cumbersome bootstrap calculations in order to assess the distribution. Our work proposes
a consistent test which is implementable in any statistical package and has Chi-Squared
asymptotics. Moreover, Monte Carlo experiments show that in small samples our test
has nice size and power properties, often better than the preexisting tests. We also provide
a condition under which a two step estimator for the model parameters is consistent
and asymptotically normal. Application to international agricultural commodities prices
show evidence of nonlinear adjustment to the long run equilibrium on the wheat prices.
Marcelo Medeiros, Rafael Ribeiro Magri.