A Note on Nonlinear Cointegration,Misspecification, and Bimodality |
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Authors: | Marcelo C Medeiros Eduardo Mendes Les Oxley |
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Institution: | 1. Department of Economics , Pontifical Catholic University of Rio de Janeiro , Rio de Janeiro , Brazil;2. School of Economics, Australian School of Business, , University of New South Wales , Sydney , Australia;3. Waikato Management School , The University of Waikato , Hamilton , New Zealand |
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Abstract: | We derive the asymptotic distribution of the ordinary least squares estimator in a regression with cointegrated variables under misspecification and/or nonlinearity in the regressors. We show that, under some circumstances, the order of convergence of the estimator changes and the asymptotic distribution is non-standard. The t-statistic might also diverge. A simple case arises when the intercept is erroneously omitted from the estimated model or in nonlinear-in-variables models with endogenous regressors. In the latter case, a solution is to use an instrumental variable estimator. The core results in this paper also generalise to more complicated nonlinear models involving integrated time series. |
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Keywords: | Asymptotic theory Bimodality Cointegration Misspecification Nonlinearity |
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