Bai and Perron str break test using Non-linear estimation

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startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

Re: Bai and Perron str break test using Non-linear estimatio

Postby startz » Wed Mar 04, 2015 2:56 pm

lakis wrote:Guys...think I am getting crazy..Thats what I found in a published paper:

"Nonlinear least-squares estimates of the following equation: i=(1-ρ)(β+γ*p(t)+δ*y(t))+ρi(t-1)
where i is the Federal Funds Rate, p is forecasted inflation, and y is the output gap. "

First of all, the above model is linear or non-linear???? if its non-linear how do we estimate it in Eviews??

Much appreciated

The model can be equally well fit as a linear model. The intercept will be (1-ρ)β, the coefficient on p will be (1-ρ)γ etc.

lakis
Posts: 13
Joined: Wed Oct 22, 2014 7:33 am

Re: Bai and Perron str break test using Non-linear estimatio

Postby lakis » Wed Mar 04, 2015 4:16 pm

I definetly agree with you..to me this is a linear model...but with hell one should treat it as a nonlinear and estimate it like that ???

startz
Non-normality and collinearity are NOT problems!
Posts: 3551
Joined: Wed Sep 17, 2008 2:25 pm

Re: Bai and Perron str break test using Non-linear estimatio

Postby startz » Wed Mar 04, 2015 4:18 pm

It lets you get the long-run coefficients directly.

trubador
Did you use forum search?
Posts: 1518
Joined: Thu Nov 20, 2008 12:04 pm

Re: Bai and Perron str break test using Non-linear estimatio

Postby trubador » Thu Mar 05, 2015 4:03 am

Unfortunately, there are certain cases that one should estimate nonlinear relationship directly instead of linearizing it. But, this is not one of them. Startz and Glenn have already pointed you in the right direction. So, all you have to do is get your hands dirty:

Code: Select all

wfcreate m 1960 2014

!rho = 0.8
!beta = 0.5
!gamma = 1
!delta = 2

series x1 = nrnd
series x2 = nrnd

series y = nrnd

smpl @first+1 @last
y = (1-!rho)*(!beta+!gamma*x1+!delta*x2)+!rho*y(-1) + nrnd

coef(4) lcoef
equation eq_linear.ls y = lcoef(1) + lcoef(2)*x1 + lcoef(3)*x2 + lcoef(4)*y(-1)

coef(4) ncoef
equation eq_nonlinear.ls y=(1-ncoef(1))*(ncoef(2)+ncoef(3)*x1+ncoef(4)*x2)+ncoef(1)*y(-1)

coef(4) lcoef_e
lcoef_e(1) = (1-ncoef(1))*ncoef(2)
lcoef_e(2) = (1-ncoef(1))*ncoef(3)
lcoef_e(3) = (1-ncoef(1))*ncoef(4)
lcoef_e(4) = ncoef(1)

matrix(4,2) compare
colplace(compare,lcoef,1)
colplace(compare,lcoef_e,2)
show compare

lakis
Posts: 13
Joined: Wed Oct 22, 2014 7:33 am

Re: Bai and Perron str break test using Non-linear estimatio

Postby lakis » Thu Mar 05, 2015 10:14 am

Omg....You are absolutely right...I was just blind...thanks for the help all of you guys..

Much appreciated.xx

EViews Glenn
EViews Developer
Posts: 2636
Joined: Wed Oct 15, 2008 9:17 am

Re: Bai and Perron str break test using Non-linear estimatio

Postby EViews Glenn » Thu Mar 05, 2015 10:17 am

Note that if you want to get the long-run coefficients with standard errors after running the linear form, just put the expressions in the Wald test.


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