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Testing For Nonlinearity In G7 Macroeconomic Time Series

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  • Yavuz, Nilgün Çil

    ()
    (Department of Econometrics, Faculty of Economics, Istanbul University,)

  • Yilanci, Veli

    ()
    (Department of Econometrics, Faculty of Economics, Istanbul University,)

Abstract

In this study, we test the linearity of G7 macroeconomic time series over the period 1959Q1-1999Q4. The stationarity properties of this dataset was before tested by Aksoy and Ledesma (2008) employing unit root tests which are based on linear and nonlinear models. Aksoy and Ledesma (2008) concluded that the variables have uncertain order of integration. Therefore, by employing a recently introduced linearity test of Harvey et al. (2008), which is a powerful test even the order of integration is not certain, we test the linearity of this dataset to determine which kind of unit root test should have been used. We also show that more than half of the series are nonlinear which indicates the importance of testing the nonlinearity of macroeconomic time series.

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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2012)
Issue (Month): 3 (September)
Pages: 69-79

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Handle: RePEc:rjr:romjef:v::y:2012:i:3:p:69-79

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Related research

Keywords: nonlinearity; time series; unit root; G7; stationarity;

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References

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  1. Rafael Romero-Meza & Claudio Bonilla & Melvin Hinich, 2007. "Nonlinear event detection in the Chilean stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 14(13), pages 987-991.
  2. Gustavsson, Magnus & Österholm, Pär, 2006. "Does Unemployment Hysteresis Equal Employment Hysteresis?," Working Paper Series 2006:15, Uppsala University, Department of Economics.
  3. Gawon Yoon, 2010. "Nonlinearity in real exchange rates: an approach with disaggregated data and a new linearity test," Applied Economics Letters, Taylor & Francis Journals, vol. 17(11), pages 1125-1132.
  4. 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.
  5. Franses,Philip Hans & Dijk,Dick van, 2000. "Non-Linear Time Series Models in Empirical Finance," Cambridge Books, Cambridge University Press, number 9780521770415, October.
  6. Clements, Michael P. & Franses, Philip Hans & Swanson, Norman R., 2004. "Forecasting economic and financial time-series with non-linear models," International Journal of Forecasting, Elsevier, vol. 20(2), pages 169-183.
  7. Venus Khim-sen Liew & Ahmad Zubaidi Baharumshah & Terence Tai-leung Chong, 2003. "Are Asian Real Exchange Rates Stationary?," International Finance 0307002, EconWPA, revised 01 Nov 2004.
  8. Christopher Brooks & Melvin Hinich, 1998. "Episodic nonstationarity in exchange rates," Applied Economics Letters, Taylor & Francis Journals, vol. 5(11), pages 719-722.
  9. James H. Stock & Mark W. Watson, 1998. "A Comparison of Linear and Nonlinear Univariate Models for Forecasting Macroeconomic Time Series," NBER Working Papers 6607, National Bureau of Economic Research, Inc.
  10. Craigwell, Roland & Mathouraparsad, Sebastien & Maurin, Alain, 2011. "Unemployment hysteresis in the English-speaking Caribbean: evidence from non-linear models," MPRA Paper 33440, University Library of Munich, Germany.
  11. Magnus Gustavsson & Par Osterholm, 2006. "Hysteresis and non-linearities in unemployment rates," Applied Economics Letters, Taylor & Francis Journals, vol. 13(9), pages 545-548.
  12. Stefan Reitz & Ulf Slopek, 2009. "Non-Linear Oil Price Dynamics: A Tale of Heterogeneous Speculators?," German Economic Review, Verein für Socialpolitik, vol. 10, pages 270-283, 08.
  13. Gawon Yoon, 2010. "Nonlinearity in US macroeconomic time series," Applied Economics Letters, Taylor & Francis Journals, vol. 17(16), pages 1601-1609.
  14. Tsangyao Chang, 2012. "Nonlinear adjustment to purchasing power parity in China," Applied Economics Letters, Taylor & Francis Journals, vol. 19(9), pages 843-848, June.
  15. Harris, David & McCabe, Brendan & Leybourne, Stephen, 2003. "Some Limit Theory For Autocovariances Whose Order Depends On Sample Size," Econometric Theory, Cambridge University Press, vol. 19(05), pages 829-864, October.
  16. Harvey David I & Leybourne Stephen J & Xiao Bin, 2008. "A Powerful Test for Linearity When the Order of Integration is Unknown," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(3), pages 1-24, September.
  17. Huseyin Kalyoncu, 2009. "New evidence of the validity of purchasing power parity from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 63-67.
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