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A simple test for unit root bilinearity

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Author Info

  • Wojciech Charemza
  • Mikhail Lifshits

    (St. Petersburg State University)

  • Svetlana Makarova

Abstract

The paper introduces a t-ratio type test for detecting bilinearity in a stochastic unit root process. It appears that such process is a realistic approximation for many economic and financial time series. It is shown that, under the null of no bilinearity, the tests statistics are asymptotically normally distributed. Proofs of this asymptotic normality requires the Gihman and Skorohod theory for multivariate diffusion processes. Finite sample results describe speed of convergence, power of the tests and possible distortions to unit root testing which might appear due to the presence of bilinearity. It is concluded that the two-step testing procedure suggested here (the first step for the linear unit root and the second step for its bilinearity) is consistent in the sense that the size of step one test is not affected by the possible detection of bilinearity at step two.

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Bibliographic Info

Paper provided by European University at St. Petersburg, Department of Economics in its series EUSP Deparment of Economics Working Paper Series with number Ec-01/02.

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Length: 44 pages
Date of creation: 29 Mar 2002
Date of revision: 29 Mar 2002
Handle: RePEc:eus:wpaper:ec0102

Note: Paper submitted to 57th Econometric Society European Meeting, February 2002, http://www.eea-esem.com/papers/eea-esem/esem2002/617/Bilinear.pdf
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Keywords: time-series econometrics; testing; nonstationary bilinear processes;

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