NONLINEAR ADJUSTMENT OF REAL WAGES, EMPLOYMENT AND OUTPUT IN THE UK

We employ the Brock, Dechert and Scheinkman statistic to investigate n on-linearity in conditional mean in UK real wages, employment and outp ut, and to fit threshold regression models to the series. The latter p rovide reasonable representations for the non-linearity in real wages and output but the residuals from the threshold autoregressive model f or employment still contain a non-linear component. In a forecast comp arison the TAR models performed better than simple autoregressions. Us ing the lagged share of wages as an error-correction term we find evid ence that all three series respond asymmetrically to lagged changes in wage share and other variables. Forecasts of real wages and employmen t derived from these models were superior to those derived from standa rd, symmetric, ECMs.