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Rank Tests for Nonlinear Cointegration

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  • Breitung, Jorg

Abstract

A test procedure based on ranks is suggested to test for nonlinear cointegration. For two (or more) time series it is assumed that monotonic transformations exist such that the normalized series can asymptotically be represented as Wiener processes. Rank-test procedures based on the difference between the sequences of ranks are suggested. If there is no cointegration between the time series, the sequences of ranks tend to diverge, whereas under cointegration the sequences of ranks evolve similarly. Monte Carlo simulations suggest that for a wide range of nonlinear models the rank tests perform better than their parametric competitors. To test for nonlinear cointegration, a variable addition test based on ranks is suggested. In an empirical illustration, the rank statistics are applied to test the relationship between bond yields with different times to maturity.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 19 (2001)
Issue (Month): 3 (July)
Pages: 331-40

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Handle: RePEc:bes:jnlbes:v:19:y:2001:i:3:p:331-40

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  1. Breitung, Jörg & Gouriéroux, Christian, 1996. "Rank tests for unit roots," SFB 373 Discussion Papers 1996,9, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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