A Note on Nonlinear Cointegration, Misspecification, and Bimodality

Marcelo Medeiros (), Eduardo Mendes and Les Oxley

Econometric Reviews, 2014, vol. 33, issue 7, 713-731

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.

Date: 2014
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Working Paper: A Note on Nonlinear Cointegration, Misspecification and Bimodality (2010)
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DOI: 10.1080/07474938.2012.690676

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