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Linearity tests and stationarity

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  • Rehim Kilic

Abstract

This paper shows that the asymptotic distributions of LM -type linearity tests against Smooth Transition Autoregressive (STAR) models, in the presence of a unit root, are non-standard and using standard χ 2 critical values may lead to incorrect inference as the tails of the distribution of tests will be thicker than the χ 2 . This finding also indicates that one needs to test for stationarity prior to applying linearity tests. Copyright Royal Economic Socciety 2004

Suggested Citation

  • Rehim Kilic, 2004. "Linearity tests and stationarity," Econometrics Journal, Royal Economic Society, vol. 7(1), pages 55-62, June.
    • Handle: RePEc:ect:emjrnl:v:7:y:2004:i:1:p:55-62
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    Cited by:

    1. repec:lan:wpaper:2450 is not listed on IDEAS
    2. Yamin Ahmad & Stuart Glosser, 2011. "Searching for nonlinearities in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 43(15), pages 1829-1845.
    3. Gawon Yoon, 2010. "Nonlinear mean-reversion to purchasing power parity: exponential smooth transition autoregressive models and stochastic unit root processes," Applied Economics, Taylor & Francis Journals, vol. 42(4), pages 489-496.
    4. Nesmith Travis D & Jones Barry E, 2008. "Linear Cointegration of Nonlinear Time Series with an Application to Interest Rate Dynamics," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(1), pages 1-18, March.
    5. Aksoy Yunus & Leon-Ledesma Miguel A., 2008. "Non-Linearities and Unit Roots in G7 Macroeconomic Variables," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-44, February.
    6. repec:lan:wpaper:2592 is not listed on IDEAS
    7. repec:lan:wpaper:2369 is not listed on IDEAS
    8. Kaufmann, Hendrik & Kruse, Robinson & Sibbertsen, Philipp, 2012. "On tests for linearity against STAR models with deterministic trends," Economics Letters, Elsevier, vol. 117(1), pages 268-271.
    9. E Pavlidis & I Paya & D Peel, 2009. "Forecasting the Real Exchange Rate using a Long Span of Data. A Rematch: Linear vs Nonlinear," Working Papers 601190, Lancaster University Management School, Economics Department.
    10. Sollis, Robert, 2008. "U.S. dollar real exchange rates: Nonlinearity revisited," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 516-528, June.

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