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A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks

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  • Ralf Becker
  • Walter Enders
  • Junsoo Lee

Abstract

Macroeconomic variables have been shown to display a wide variety of structural breaks of unknown number, duration and form. This poses a challenge since improperly modelled breaks can result in a seriously misspecified model. In this paper, we develop a new test for stationarity that approximates the unknown form of structural breaks using a selected frequency component from a Fourier approximation. Our proposed test performs quite well when breaks are gradual, and shows reasonable power. The appropriate use of the test is illustrated by examining real exchange rates in the post-Bretton Woods period. Copyright 2006 The Authors Journal compilation 2006 Blackwell Publishing Ltd.

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  • Ralf Becker & Walter Enders & Junsoo Lee, 2006. "A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(3), pages 381-409, May.
  • Handle: RePEc:bla:jtsera:v:27:y:2006:i:3:p:381-409
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    1. Davidson, James, 1994. "Stochastic Limit Theory: An Introduction for Econometricians," OUP Catalogue, Oxford University Press, number 9780198774037.
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