Investigating Nonlinearity: A Note on the Estimation of Hamilton’s Random Field Regression Model

This is a revised and extended version of the authors’ 2003 Trinity Economic Paper. It describes Hamilton’s (2001) approach to nonlinear econometric modelling and some of the methods of nonlinear optimization, as before, but adds significantly to the investigation of Hamilton’s Gauss program for the implementation of his methodology. Specifically, it reports on the performance of this program using data relating to Hamilton’s US Phillips curve example, the use of two versions of the Gauss software and a range of numerical optimization options. It also examines the impact of changes in initial parameter estimates, the use of algorithm switching strategies, and the e?ects of changes in the sample data on the results produced by Hamilton’s procedure. The new results presented suggest some further clear conclusions that will be of value to those using Hamilton’s method.