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The power of asymmetric unit root tests under threshold and consistent-threshold estimation

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  • Steven Cook
  • Neil Manning
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    Abstract

    The asymmetric unit root tests of Enders and Granger (Journal of Business and Economic Statistics, 16, 304-11, 1998) are examined using consistent threshold estimation and the original two-step procedure. In contrast to earlier studies, the ability of the tests to jointly reject the unit root and symmetry hypotheses is examined, thus permitting a fuller analysis of the tests' properties. Whilst the threshold autoregressive test is found to have little power in either its consistent or original forms, the consistent momentum-threshold autoregressive test is found to exhibit high power against a range of plausible alternatives when using newly derived critical values.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684032000125105
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 35 (2003)
    Issue (Month): 14 ()
    Pages: 1543-1550

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    Handle: RePEc:taf:applec:v:35:y:2003:i:14:p:1543-1550

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    References

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    1. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-76, April.
    2. Krane, Spencer D, 1994. "The Distinction between Inventory Holding and Stockout Costs: Implications for Target Inventories, Asymmetric Adjustment, and the Effect of Aggregation on Production Smoothing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 117-36, February.
    3. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
    4. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    5. Pippenger, Michael K & Goering, Gregory E, 1993. "A Note on the Empirical Power of Unit Root Tests under Threshold Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 473-81, November.
    6. Gale, Douglas, 1996. "Delay and Cycles," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 169-98, April.
    7. Laurence Ball & N. Gregory Mankiw, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," NBER Working Papers 4089, National Bureau of Economic Research, Inc.
    8. Walter Enders, 2001. "Improved critical values for the Enders-Granger unit-root test," Applied Economics Letters, Taylor & Francis Journals, vol. 8(4), pages 257-261.
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    Cited by:
    1. Cook, Steven, 2008. "Joint maximum likelihood estimation of unit root testing equations and GARCH processes: Some finite-sample issues," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 77(1), pages 109-116.
    2. Cook, Steven, 2006. "The impact of GARCH on asymmetric unit root tests," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 745-752.

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