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Phillips-Perron-type unit root tests in the nonlinear ESTAR framework

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  • Rothe, Christoph
  • Sibbertsen, Philipp

Abstract

In this paper, we propose Phillips-Perron type, semiparametric testing procedures to distinguish a unit root process from a mean-reverting exponential smooth transition autoregressive one. The limiting nonstandard distributions are derived under very general conditions and simulation evidence shows that the tests perform better than the standard Phillips-Perron or Dickey-Fuller tests in the region of the null.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-315.pdf
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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-315.

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Length: 19 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:han:dpaper:dp-315

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Keywords: Exponential smooth transition autoregressive model; Unit roots; Monte Carlo simulations; Purchasing Power Parity;

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References

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  1. Perron, Pierre & Ng, Serena, 1996. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Review of Economic Studies, Wiley Blackwell, vol. 63(3), pages 435-63, July.
  2. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March.
  3. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  4. repec:cup:etheor:v:8:y:1992:i:4:p:489-500 is not listed on IDEAS
  5. Donald W.K. Andrews & Christopher J. Monahan, 1990. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Cowles Foundation Discussion Papers 942, Cowles Foundation for Research in Economics, Yale University.
  6. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
  7. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers 164, National Institute of Economic and Social Research.
  8. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. " The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-19, September.
  9. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
  10. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
  11. Phillips, Peter C B & Xiao, Zhijie, 1998. " A Primer on Unit Root Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 423-69, December.
  12. Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998. "Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era," Boston College Working Papers in Economics 404., Boston College Department of Economics, revised 16 Nov 1999.
  13. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-80.
  14. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  15. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(04), pages 489-500, December.
  16. 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, vol. 105(4), pages 862-79, August.
  17. Sarno, Lucio, 2000. "Real exchange rate behavior in the Middle East: a re-examination," Economics Letters, Elsevier, vol. 66(2), pages 127-136, February.
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Cited by:
  1. Niels Haldrup & Robinson Kruse & Timo Teräsvirta & Rasmus T. Varneskov, 2012. "Unit roots, nonlinearities and structural breaks," CREATES Research Papers 2012-14, School of Economics and Management, University of Aarhus.
  2. Chen, Shyh-Wei, 2014. "Smooth transition, non-linearity and current account sustainability: Evidence from the European countries," Economic Modelling, Elsevier, vol. 38(C), pages 541-554.
  3. Kruse, Robinson, 2008. "A new unit root test against ESTAR based on a class of modified statistics," Hannover Economic Papers (HEP) dp-398, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  4. Yamin Ahmad & Ming Chien Lo & Olena Mykhaylova, 2012. "Causes of Nonlinearities in low order models of the real exchange rate," Working Papers 12-01, UW-Whitewater, Department of Economics, revised Mar 2013.
  5. Kuswanto, Heri & Sibbertsen, Philipp, 2009. "Testing for Long Memory Against ESTAR Nonlinearities," Hannover Economic Papers (HEP) dp-427, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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