Bubbles or Volatility: A Markov-Switching Unit Root Test with Regime-Varying Error Variance
AbstractWe demonstrate that the constant variance assumption in the Markov-switching Augmented Dickey-Fuller (ADF) test proposed by Hall, Psaradakis and Sola (1999) may result in the misjudgement of bubbles. Upon relaxing this assumption to allow for regime-varying error variances in the Markov-switching ADF test (referred to as the MSADF-RV test), we revisit the integration properties of the money base, consumer price and exchange rate in Argentina from January 1983 to November 1989. Based on the MSADF-RV test, we observe the occurrence of volatility switches in the exchange rate and the consumer price instead of observing bubbles in these two series as in Hall, Psaradakis and Sola (1999)
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Bibliographic InfoPaper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2010-524.
Length: 14 Pages
Date of creation: Jun 2010
Date of revision:
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-10 (All new papers)
- NEP-ECM-2010-07-10 (Econometrics)
- NEP-ETS-2010-07-10 (Econometric Time Series)
- NEP-ORE-2010-07-10 (Operations Research)
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