Nonstationary Discrete Choice: A Corrigendum and Addendum

Peter Phillips, Sainan Jin and Ling Hu
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Ling Hu: Dept. of Economics, Ohio State University

No 1516, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We correct the limit theory presented in an earlier paper by Hu and Phillips (Journal of Econometrics, 2004) for nonstationary time series discrete choice models with multiple choices and thresholds. The new limit theory shows that, in contrast to the binary choice model with nonstationary regressors and a zero threshold where there are dual rates of convergence (n^{1/4} and n^{3/4}), all parameters including the thresholds converge at the rate n^{3/4}. The presence of non-zero thresholds therefore materially affects rates of convergence. Dual rates of convergence reappear when stationary variables are present in the system. Some simulation evidence is provided, showing how the magnitude of the thresholds affects finite sample performance. A new finding is that predicted probabilities and marginal effect estimates have finite sample distributions that manifest a pile-up, or increasing density, towards the limits of the domain of definition.

Keywords: Brownian motion; Brownian local time; Discrete choices; Integrated processes; Pile-up problem; Threshold parameters (search for similar items in EconPapers)
JEL-codes: C23 C25 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2005-06
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-ets
Note: CFP 1214.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published in Journal of Econometrics (2007), 141(2): 115-130

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Journal Article: Nonstationary discrete choice: A corrigendum and addendum (2007)
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