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Asymptotic and bootstrap tests for linearity in a TAR-GARCH(1,1) model with a unit root

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  • Gospodinov, Nikolay

Abstract

This paper derives the limiting distribution of the Lagrange Multiplier (LM) test for threshold nonlinearity in a TAR model with GARCH errors when one of the regimes contains a unit root. It is shown that the asymptotic distribution is nonstandard and depends on nuisance parameters that capture the degree of conditional heteroskedasticity and non-Gaussian nature of the process. We propose a bootstrap procedure for approximating the exact finite-sample distribution of the test for linearity and establish its asymptotic validity.

Suggested Citation

  • Gospodinov, Nikolay, 2008. "Asymptotic and bootstrap tests for linearity in a TAR-GARCH(1,1) model with a unit root," Journal of Econometrics, Elsevier, vol. 146(1), pages 146-161, September.
  • Handle: RePEc:eee:econom:v:146:y:2008:i:1:p:146-161
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    References listed on IDEAS

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    Cited by:

    1. Narayan, Paresh Kumar & Liu, Ruipeng & Westerlund, Joakim, 2016. "A GARCH model for testing market efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 121-138.
    2. Jesús Gonzalo & Jean-Yves Pitarakis, 2013. "Estimation and inference in threshold type regime switching models," Chapters,in: Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 8, pages 189-205 Edward Elgar Publishing.
    3. Ghassan, Hassan Belkacem & AlHajhoj, Hassan Rafdan, 2016. "Long run dynamic volatilities between OPEC and non-OPEC crude oil prices," Applied Energy, Elsevier, vol. 169(C), pages 384-394.
    4. Hassan Ghassan & Prashanta Banerjee, 2015. "A threshold cointegration analysis of asymmetric adjustment of OPEC and non-OPEC monthly crude oil prices," Empirical Economics, Springer, vol. 49(1), pages 305-323, August.

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