Bec, Frederique2; Rahbek, Anders Christian5; Shephard, Neil4
1 Department of Economics, Faculty of Social Sciences, Københavns Universitet2 CREST-ENSAE, Paris3 Økonomisk Institut, Department of Economics, Faculty of Social Sciences, Københavns Universitet4 Oxford University5 Økonomisk Institut, Department of Economics, Faculty of Social Sciences, Københavns Universitet
A Multivariate Dynamic Mixture Autoregression<strong> </strong>
This paper proposes and analyses the autoregressive conditional root (ACR) time-series model. This multivariate dynamic mixture autoregression allows for non-stationary epochs. It proves to be an appealing alternative to existing nonlinear models, e.g. the threshold autoregressive or Markov switching class of models, which are commonly used to describe nonlinear dynamics as implied by arbitrage in presence of transaction costs. Simple conditions on the parameters of the ACR process and its innovations are shown to imply geometric ergodicity, stationarity and existence of moments. Furthermore, consistency and asymptotic normality of the maximum likelihood estimators are established. An application to real exchange rate data illustrates the analysis.
Oxford Bulletin of Economics and Statistics, 2008, Vol 70, Issue 5, p. 583-618