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Frequency domain and time series properties of asymmetric error correction terms

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  • Steven Cook

Abstract

The now familiar error correction model has recently been extended to allow for the modelling of asymmetric behaviour, resulting in the development of the asymmetric error correction model. Previous workers have undertaken studies upon which the 'classic', implicitly symmetric, error correction model was developed. It was found that the Escribo-Pfann method approach detected significant asymmetries while the Granger-Lee did not. In this paper the properties of the alternative methods are analysed in detail to examine why one method met with success, but not the other. Via the use of estimated sample spectral densities and correlograms, a significant property of the Granger-Lee method is uncovered. This property, particularly relevant in application to consumers' expenditure, has a wider relevance, helping explain why the approach has met with limited success.

Suggested Citation

  • Steven Cook, 2000. "Frequency domain and time series properties of asymmetric error correction terms," Applied Economics, Taylor & Francis Journals, vol. 32(3), pages 297-304.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:3:p:297-304
    DOI: 10.1080/000368400322723
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    References listed on IDEAS

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    1. Scott, A., 1995. "Why id Consumption so Seasonal?," Economics Series Working Papers 99172, University of Oxford, Department of Economics.
    2. Sean Holly & Paul Turner, 2001. "Asymmetric Adjustment Costs, Asymmetric Pricing and Employment: Evidence from the UK," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(1), pages 69-81, February.
    3. Arden, R. & Holly, S. & Turner, P., 1997. "The Asymmetric Adjustment of Prices: Theory and Evidence from UK Manufacturing," Cambridge Working Papers in Economics 9715, Faculty of Economics, University of Cambridge.
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    Cited by:

    1. Eliasson, Ann-Charlotte & Teräsvirta, Timo, 2002. "Error correction in DHSY," SSE/EFI Working Paper Series in Economics and Finance 517, Stockholm School of Economics.
    2. Steven Cook & Sean Holly, 2002. "A statistical analysis of regime switching under asymmetric error correction," Applied Economics Letters, Taylor & Francis Journals, vol. 9(4), pages 275-278.
    3. Steven Cook, 2001. "Regime switching and the forecasting bias of asymmetric error correction models," Applied Economics Letters, Taylor & Francis Journals, vol. 8(9), pages 569-571.
    4. Steven Cook, 2000. "The alternative asymmetric behaviour of Australian consumers' expenditure," Applied Economics Letters, Taylor & Francis Journals, vol. 7(6), pages 349-352.

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