In this case, the LSTR model becomes a TAR model (Tong, 1990), but ESTR is different.
Moreover, an estimation of the STR is made based on the outcome of the LSTR and ESTR determination.
On the other hand, estimation based on the ESTR specification of Equation 3 with the transition function of Equation 6 indicates that the exchange rate volatility in the markets follows three regimes.
4] [not equal to] 0 implies the rejection of the ESTR
specification since all the odd powers of the Taylor expansion of an exponential function are zero.
However, Terasvirta (1994) indicates that the ESTR model can have similar implications to those of the LSTR model in practice when the vast majority of the data lie to the right of c.
The first step in detecting nonlinearities in short-run deviations from equilibrium is to test a linear characterization of imports against a LSTR or an ESTR one.
According to the latter, the ESTR model explains 44% of the residual variance of the linear regression.
The estimated ESTR model in (7) shows how imports growth depends on its own recent history, as well as on GDP and relative prices dynamics; in the same manner, it reacts to deviations from the equilibrium path.
model for 1960-78 is not consistent with a stationary EPRR for any inflation rate, and estimated LSTR model for 1979-2004 is consistent with a stationary EPRR only when the inflation rate is above approximately 3 percent.
We consider two alternative nonlinear error-correction models, the ESTR and LSTR models with smooth transition adjustment back to the long-run equilibrium that is described by the linear cointegrating relationship.
We carry out an LM-type test of the null hypothesis of a linear error-correction model against the alternative of a nonlinear error-correction model of the ESTR or LSTR type for the two alternative transition variables.
However, the LSTR model for M0 and the ESTR and LSTR models for M2 show significant error-autocorrelation and remaining nonlinearity and are therefore rejected by the data.