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Testing for a Unit Root against Transitional Autoregressive Models

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  • Joon Y. Park
  • Mototsugu Shintani

Abstract

This paper considers the test of a unit root in transitional autoregressive models. In particular, we develop the asymptotic theory of the inf-t test for the null hypothesis of a unit root in a wide class of nonlinear autoregressive models having parameters that are identified only under the alternative of stationarity. Our framework is very general and allows for virtually all potentially interesting models with the threshold, discrete and smooth transition functions. The specifications of shortrun dynamics used in the paper are also fully general, and comparable to those used in the linear unit root models. Most importantly, our asymptotics take it into consideration that the parameter space has a random limit. This is an essential feature of the unit root test in transitional autoregressive models, which has been ignored in the literature. For this very general class of transitional autoregressive models, we show that the inf-t test has well-defined limit distribution depending only upon the transition function and the limit parameter space. The critical values of the test are provided for some of the commonly used models under the conventional specification of the parameter space. Our simulation study shows that the test has good size with the power that is significantly higher than the usual ADF test even for samples of relatively small sizes. We apply the test to various economic time series and find strong evidence for the rejection of random walks in favor of stationary transitional autoregressive models.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 321307000000000316.

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Date of creation: 02 Sep 2006
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Handle: RePEc:cla:levrem:321307000000000316

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  1. van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001.
  2. Philip Rothman, . "Forecasting Asymmetric Unemployment Rates," Working Papers 9618, East Carolina University, Department of Economics.
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  8. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  9. Joon Y. Park & Peter C.B. Phillips, 1998. "Nonlinear Regressions with Integrated Time Series," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1190, Cowles Foundation for Research in Economics, Yale University.
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  12. Bec, Frederique & Guay, Alain & Guerre, Emmanuel, 2008. "Adaptive consistent unit-root tests based on autoregressive threshold model," Journal of Econometrics, Elsevier, Elsevier, vol. 142(1), pages 94-133, January.
  13. Peter C.B. Phillips & Joon Y. Park, 1998. "Asymptotics for Nonlinear Transformations of Integrated Time Series," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1182, Cowles Foundation for Research in Economics, Yale University.
  14. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(4), pages 862-79, August.
  15. Yoosoon Chang & Joon Park, 2002. "On The Asymptotics Of Adf Tests For Unit Roots," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 21(4), pages 431-447.
  16. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1555-1596, November.
  17. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, Elsevier, vol. 112(2), pages 359-379, February.
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  19. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers, National Institute of Economic and Social Research 164, National Institute of Economic and Social Research.
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