Testing for Neglected Nonlinearity in Long Memory Models
AbstractInterest in the interface of nonstationarity and nonlinearity has been increasing in the econometric literature. The motivation for this development maybe be traced to the perceived possibility that processes following nonlinear models maybe mistakenly taken to be unit root or long-memory nonstationary. This paper considers the possibility that processes may exhibit both long memory and nonlinearity. We test against the possibility that the process u t in the model (1-L) dy t�=�u t is nonlinear. We do not assume a particular parametric form for the nonlinear process but construct a pure significance test. Clearly, such a test could be straightforwardly constructed if d were known. Unfortunately, if a linear model is assumed while estimating d the power of the test will be reduced. We propose new more powerful tests for this problem. We present Monte Carlo evidence on the performance of the new tests and apply them to Yen real exchange rates.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 473.
Date of creation: Nov 2002
Date of revision:
Long memory; Nonlinearity; Neural networks; Real exchange rates.;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-ECM-2002-12-10 (Econometrics)
- NEP-ETS-2002-12-02 (Econometric Time Series)
- NEP-IFN-2002-12-02 (International Finance)
- NEP-RMG-2002-12-02 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrew P. Blake & George Kapetanios, 2003.
"A radial basis function artificial neural network test for neglected nonlinearity,"
Royal Economic Society, vol. 6(2), pages 357-373, December.
- Andrew P Blake & George Kapetanios, 1999. "A Radial Basis Function Artificial Neural Network Test for Neglected Nonlinearity," NIESR Discussion Papers 153, National Institute of Economic and Social Research.
- Davidson, James & Sibbertsen, Philipp, 2005.
"Generating schemes for long memory processes: regimes, aggregation and linearity,"
Journal of Econometrics,
Elsevier, vol. 128(2), pages 253-282, October.
- Davidson, James & Sibbertsen, Philipp, 2002. "Generating schemes for long memory processes: Regimes, aggregation and linearity," Technical Reports 2002,46, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
- Uwe Hassler & Paulo M.M. Rodrigues & Antonio Rubia, 2012. "Quantile regression for long memory testing: A case of realized volatility," Working Papers w201207, Banco de Portugal, Economics and Research Department.
- Richard T. Baille & Claudio Morana, 2009. "Investigating Inflation Dynamics and Structural Change with an Adaptive ARFIMA Approach," ICER Working Papers - Applied Mathematics Series 06-2009, ICER - International Centre for Economic Research.
- Ulrike Busch & Dieter Nautz, 2009.
"Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area,"
SFB 649 Discussion Papers
SFB649DP2009-029, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Ulrike Busch & Dieter Nautz, 2010. "Controllability and Persistence of Money Market Rates along the Yield Curve: Evidence from the Euro Area," German Economic Review, Verein für Socialpolitik, vol. 11, pages 367-380, 08.
- Busch, Ulrike & Nautz, Dieter, 2009. "Controllability and persistence of money market rates along the yield curve: evidence from the euro area," Discussion Papers 2009/5, Free University Berlin, School of Business & Economics.
- Kuswanto, Heri & Sibbertsen, Philipp, 2009. "Testing for Long Memory Against ESTAR Nonlinearities," Diskussionspapiere der Wirtschaftswissenschaftlichen FakultÃ¤t der Leibniz UniversitÃ¤t Hannover dp-427, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Smallwood, Aaron D., 2008. "Measuring the persistence of deviations from purchasing power parity with a fractionally integrated STAR model," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1161-1176, November.
- Aaron Smallwood, 2004. "Joint Tests for Long Memory and Non-linearity: The Case of Purchasing Power Parity," Computing in Economics and Finance 2004 23, Society for Computational Economics.
- S. Bordignon & D. Raggi, 2010.
"Long memory and nonlinearities in realized volatility: a Markov switching approach,"
694, Dipartimento Scienze Economiche, Universita' di Bologna.
- Raggi, Davide & Bordignon, Silvano, 2012. "Long memory and nonlinearities in realized volatility: A Markov switching approach," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3730-3742.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nick Vriend).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.