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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. 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.
  2. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, Econometric Society, vol. 62(6), pages 1383-1414, November.
  3. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  4. 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.
  5. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9427, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Sarno, Lucio, 2000. "Real exchange rate behavior in the Middle East: a re-examination," Economics Letters, Elsevier, vol. 66(2), pages 127-136, February.
  7. 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.
  8. 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.
  9. 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.
  10. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 953-66, July.
  11. 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, American Finance Association, vol. 50(4), pages 1309-19, September.
  12. repec:cup:etheor:v:8:y:1992:i:4:p:489-500 is not listed on IDEAS
  13. Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001. "Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, Elsevier, vol. 20(3), pages 379-399, June.
  14. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(04), pages 489-500, December.
  15. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  16. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  17. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, Biometrika Trust, vol. 89(2), pages 484-489, June.
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Citations

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Cited by:
  1. Dilem Yildirim & Ralf Becker & Denise R Osborn, 2009. "Bootstrap Unit Root Tests for Nonlinear Threshold Models," The School of Economics Discussion Paper Series, Economics, The University of Manchester 0915, Economics, The University of Manchester.
  2. 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.
  3. Kruse, Robinson, 2008. "A new unit root test against ESTAR based on a class of modified statistics," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-398, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  4. 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.
  5. 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.
  6. Kuswanto, Heri & Sibbertsen, Philipp, 2009. "Testing for Long Memory Against ESTAR Nonlinearities," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-427, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

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