SUBGEOMETRICALLY ERGODIC AUTOREGRESSIONS WITH AUTOREGRESSIVE CONDITIONAL HETEROSKEDASTICITY

Abstract

In this paper, we consider subgeometric (specifically, polynomial) ergodicity of univariate nonlinear autoregressions with autoregressive conditional heteroskedasticity (ARCH). The notion of subgeometric ergodicity was introduced in the Markov chain literature in the 1980s, and it means that the transition probability measures converge to the stationary measure at a rate slower than geometric; this rate is also closely related to the convergence rate of $\beta $ -mixing coefficients. While the existing literature on subgeometrically ergodic autoregressions assumes a homoskedastic error term, this paper provides an extension to the case of conditionally heteroskedastic ARCH-type errors, considerably widening the scope of potential applications. Specifically, we consider suitably defined higher-order nonlinear autoregressions with possibly nonlinear ARCH errors and show that they are, under appropriate conditions, subgeometrically ergodic at a polynomial rate. An empirical example using energy sector volatility index data illustrates the use of subgeometrically ergodic AR–ARCH models.