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Testing for a Linear Unit Root against Nonlinear Threshold Stationarity

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  • George Kapetanios
  • Yongcheol Shin

    ()

Abstract

In this paper we propose a direct testing procedure to detect the presence of linear unit root against geometrically ergodic process defined by self exciting threshold autoregressive (SETAR) model with three regimes. Assuming that the process follows the random walk in the corridor regime, the null can be tested by the Wald test for the joint significance of the threshold autoregressive parameters under both lower and upper regimes. We prove that the suggested Wald test does not depend on unknown threshold values the null at least asymptotically. We also derive its analytic asymptotic numm distribution. Monte Carlo evidence clearly indicates that the exponential average of the Wald statistic is more powerful than the standard Dickey-Fuller test that ignores the threshold nature under the alternative.

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File URL: http://les.man.ac.uk/sapcourses/esgc/Papers2001/kapeta~1.pdf
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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 60.

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Length: 25
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:edn:esedps:60

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Related research

Keywords: Self-exciting Threshold Autogressive Model; Exponentially Ergodic; Process Unit Roots; Thresholds Cointegration; Wald Tests; Critical Values; Monte Carlo Simulations.;

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