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Rank Tests for Nonlinear Cointegration

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Author Info
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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Publisher 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. Liew, Venus Khim-Sen & Lee, Hock-Ann & Lim, Kian-Ping, 2005. "Purchasing power parity in Asian economies: further evidence from rank tests for cointegration," MPRA Paper 7301, University Library of Munich, Germany. [Downloadable!]
  2. Seung Hyun Hong & Peter C. B. Phillips, 2005. "Testing Linearity in Cointegrating Relations with an Application to Purchasing Power Parity," Cowles Foundation Discussion Papers 1541, Cowles Foundation, Yale University. [Downloadable!]
  3. Alfred A. Haug & Syed A. Basher, 2004. "Unit Roots, Nonlinear Cointegration and Purchasing Power Parity," Econometrics 0401006, EconWPA, revised 16 Nov 2005. [Downloadable!]
    Other versions:
  4. Alfred Haug & Pierre Siklos, 2006. "The Behavior of Short-Term Interest Rates: International Evidence of Non-Linear Adjustment," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 10(4), pages 1276-1276. [Downloadable!] (restricted)
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