Brazilian Review of Econometrics V 33, N 2, P 145-170, 2014

Marcelo Medeiros, Rafael Ribeiro Magri.

Existing tests for nonlinearity in vector error correction models are highly intensive computationally

and have nuisance parameters in the asymptotic distribution, what calls for

cumbersome bootstrap calculations in order to assess the distribution. Our work proposes

a consistent test which is implementable in any statistical package and has Chi-Squared

asymptotics. Moreover, Monte Carlo experiments show that in small samples our test

has nice size and power properties, often better than the preexisting tests. We also provide

a condition under which a two step estimator for the model parameters is consistent

and asymptotically normal. Application to international agricultural commodities prices

show evidence of nonlinear adjustment to the long run equilibrium on the wheat prices.