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Testing for Nonlinear Cointegration under Heteroskedasticity

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  • Christoph Hanck
  • Till Massing

Abstract

This article discusses tests for nonlinear cointegration in the presence of variance breaks. We build on cointegration test approaches under heteroskedasticity (Cavaliere and Taylor, 2006, Journal of Time Series Analysis) and for nonlinearity (Choi and Saikkonen, 2010, Econometric Theory) to propose a bootstrap test and prove its consistency. A Monte Carlo study shows the approach to have good finite sample properties. We provide an empirical application to the environmental Kuznets curves (EKC), finding that the cointegration test provides little evidence for the EKC hypothesis. Additionally, we examine the nonlinear relation between the US money and the interest rate, finding that our test does not reject the null of a smooth transition cointegrating relation.

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  • Christoph Hanck & Till Massing, 2021. "Testing for Nonlinear Cointegration under Heteroskedasticity," Papers 2102.08809, arXiv.org, revised Nov 2023.
    • Handle: RePEc:arx:papers:2102.08809
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    References listed on IDEAS

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