Testing for Cointegration in a Double-LSTR Framework
This paper investigates the finite-sample properties of the smooth transition-based cointegration test proposed by Kapetanios et al. (2006) when the data generating process under the alternative hypothesis is a globally stationary second order LSTR model. The provided procedure describes an application to long-run equilibrium relations involving real exchange rates with symmetric behaviour. We utilise the properties of the double LSTR transition function that features unit root behaviour within the inner regime and symmetric behaviour in the outer regimes. Hence, under the null hypothesis we imply no cointegration and globally stationary D-LSTR cointegration under the alternative. As a result of the identification problem the limiting distribution derived under the null hypothesis is non-standard. The Double LSTR is capable of producing three-regime TAR nonlinearity when the transition parameter tends to infinity as well as generating exponential-type nonlinearity that closely approximates ESTR nonlinearity. Therefore, we find that the Double LSTR error correction model has power against both of these alternatives.
|Date of creation:||Jul 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Koenigsworther Platz 1, D-30167 Hannover|
Phone: (0511) 762-5350
Fax: (0511) 762-5665
Web page: http://www.wiwi.uni-hannover.de
More information through EDIRC
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.:
- Chen, Li-Hsueh & Finney, Miles & Lai, Kon S., 2005. "A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices," Economics Letters, Elsevier, vol. 89(2), pages 233-239, November.
- Enders, Walter & Granger, Clive W J, 1998.
"Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 16(3), pages 304-11, July.
- Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers Archive 1388, Iowa State University, Department of Economics.
- Siklos, P.L. & Granger, C.W.J., 1997.
"Regime Sensitive Cointegration with an Application to Interest rate Parity,"
97-5, Wilfrid Laurier University, Department of Economics.
- Siklos, Pierre L. & Granger, Clive W.J., 1997. "Regime-Sensitive Cointegration With An Application To Interest-Rate Parity," Macroeconomic Dynamics, Cambridge University Press, vol. 1(03), pages 640-657, September.
- Gilles Dufrenot & Laurent Mathieu & Valerie Mignon & Anne Peguin-Feissolle, 2006.
"Persistent misalignments of the European exchange rates: some evidence from non-linear cointegration,"
Taylor & Francis Journals, vol. 38(2), pages 203-229.
- G. Dufrenot & L. Mathieu & V. Mignon, & A. Peguin-Feissolle, 2002. "Persistent misalignments of the European exchange rates : some evidence from nonlinear cointegration," THEMA Working Papers 2002-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Gilles DUFRENOT & Laurent MATHIEU & Val=E9rie MIGNON & Anne PEGUIN-FEISSOLE, 2003. "Persistent misalignments of the European exchanges rates: some evidence from nonlinear cointegration," International Finance 0309003, EconWPA.
- Gilles Dufrénot & Laurent Mathieu & Valérie Mignon & Anne Peguin-Feissolle, 2006. "Persistent misalignments of the European exchange rates: some evidence from non-linear cointegration," Post-Print halshs-00256876, HAL.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Hansen, Bruce E. & Seo, Byeongseon, 2002.
"Testing for two-regime threshold cointegration in vector error-correction models,"
Journal of Econometrics,
Elsevier, vol. 110(2), pages 293-318, October.
- Tom Doan, . "RATS programs to replicate Hansen/Seo paper on threshold cointegration," Statistical Software Components RTZ00092, Boston College Department of Economics.
- 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.
- Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
- K Abadir & W Distaso, .
"Testing joint hypotheses when one of the alternatives is one-sided,"
05/13, Department of Economics, University of York.
- Abadir, Karim M. & Distaso, Walter, 2007. "Testing joint hypotheses when one of the alternatives is one-sided," Journal of Econometrics, Elsevier, vol. 140(2), pages 695-718, October.
- Alan M. Taylor, 2000.
"Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price,"
NBER Working Papers
7577, National Bureau of Economic Research, Inc.
- Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-98, March.
- Bierens, Herman J. & Martins, Luis F., 2010. "Time-Varying Cointegration," Econometric Theory, Cambridge University Press, vol. 26(05), pages 1453-1490, October.
- Jansen, Eilev S. & Teräsvirta, Timo, 1995.
"Testing Parameter Constancy and super Exogeneity in Econometric Equations,"
SSE/EFI Working Paper Series in Economics and Finance
53, Stockholm School of Economics.
- Jansen, Eilev S & Terasvirta, Timo, 1996. "Testing Parameter Constancy and Super Exogeneity in Econometric Equations," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 58(4), pages 735-63, November.
- Sollis, Robert, 2011. "Testing the unit root hypothesis against TAR nonlinearity using STAR-based tests," Economics Letters, Elsevier, vol. 112(1), pages 19-22, July.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Kaufmann, Hendrik & Kruse, Robinson & Sibbertsen, Philipp, 2012. "A simple specification procedure for the transition function in persistent nonlinear time series models," Hannover Economic Papers (HEP) dp-500, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.
When requesting a correction, please mention this item's handle: RePEc:han:dpaper:dp-514. 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: (Heidrich, Christian)
If references are entirely missing, you can add them using this form.