IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Testing under non-standard conditions in frequency domain: with applications to Markov regime-switching models of exchange rates and federal funds rate

  • Fangxiong Gong
  • Roberto S. Mariano

We propose two test statistics in the frequency domain and derive their exact asymptotic null distributions under the condition of unidentified nuisance parameters. The proposed methods are particularly applicable in unobserved components models. Also, it is shown that the tests have considerable power when applied to a class of Markov regime switching models. We show that, after transforming the Markov regime switching model into the frequency domain representation we only have to face the issue of unidentified nuisance parameters in a nonlinear context. The singularity problem disappears. Compared to Hansen's (1992, 1996) LR-bound test of the same Markov regime switching model, our LM test performs better in terms of finite sample power, except in the special case of the Markov switching model in which the model becomes a Normal mixture model. Our test needs only a one-dimensional grid search while Hansen's (1992, 1996) test requires a three-dimensional grid search. The LM test is applied to Markov regime switching models of exchange rates and the Federal Funds rate. We used the same exchange rates data in Engel and Hamilton (1990). The null of random walk is not rejected in the exchange rates model. The null is rejected for the Federal Funds rate in subsample periods 1955:1-1979:9 and 1982:10-1995:11.

If 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.

File URL: http://www.newyorkfed.org/research/staff_reports/sr23.html
Download Restriction: no

File URL: http://www.newyorkfed.org/research/staff_reports/sr23.pdf
Download Restriction: no

Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 23.

as
in new window

Length:
Date of creation: 1997
Date of revision:
Handle: RePEc:fip:fednsr:23
Contact details of provider: Postal: 33 Liberty Street, New York, NY 10045-0001
Web page: http://www.newyorkfed.org/
Email:


More information through EDIRC

Order Information: Web: http://www.ny.frb.org/rmaghome/staff_rp/ Email:


No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:23. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.