IDEAS home Printed from https://ideas.repec.org/p/hhs/hastef/0547.html
   My bibliography  Save this paper

A nonlinear alternative to the unit root hypothesis

Author

Listed:
  • Eklund, Bruno

    () (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

This paper considers testing the unit root hypothesis against a smooth transition autoregressive model as the alternative. The model specification makes it possible to discriminate between nonstationary random walk and stationary nonlinear processes. Some new limit results are presented, extending earlier work, and two F type tests are proposed. Small sample simulations show some size distortions, why a bootstrap method for estimating p-values to the tests are considered. Power simulations show some gain in power, compared to the common Augmented Dickey-Fuller tests. Finally, the two proposed F type tests are applied on a number of real exchange rates. For several of the exchange rates considered the linear unit root is rejected in favor of the stationary nonlinear model, supporting the purchasing power parity hypothesis.

Suggested Citation

  • Eklund, Bruno, 2003. "A nonlinear alternative to the unit root hypothesis," SSE/EFI Working Paper Series in Economics and Finance 547, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0547
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/hastef/papers/hastef0547.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. repec:cup:etheor:v:8:y:1992:i:4:p:489-500 is not listed on IDEAS
    2. Eklund, Bruno, 2003. "Testing the unit root hypothesis against the logistic smooth transition autoregressive model," SSE/EFI Working Paper Series in Economics and Finance 546, Stockholm School of Economics.
    3. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Society for Financial Studies, pages 153-180.
    4. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(04), pages 489-500, December.
    5. Ken Froot & Kenneth Rogoff, "undated". "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
    6. 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.
    7. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, pages 1555-1596.
    8. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
    9. Hamori, Shigeyuki & Tokihisa, Akira, 1997. "Testing for a unit root in the presence of a variance shift1," Economics Letters, Elsevier, vol. 57(3), pages 245-253, December.
    10. 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 304-311, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. JamesR. Lothian & MarkP. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod-Balassa-Samuelson Effect?," Economic Journal, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
    2. Craig, Lee & Holt, Matthew T., 2012. "The Role of Mechanical Refrigeration in Spatial and Temporal Price Dynamics for Regional U.S. Egg Markets, 1880–1911," MPRA Paper 39554, University Library of Munich, Germany.
    3. repec:lan:wpaper:2453 is not listed on IDEAS
    4. repec:lan:wpaper:2374 is not listed on IDEAS
    5. I A Venetis & I Paya & D Peel, 2009. "ESTAR model with multiple fixed points. Testing and Estimation," Working Papers 599093, Lancaster University Management School, Economics Department.
    6. Dueker, Michael J. & Psaradakis, Zacharias & Sola, Martin & Spagnolo, Fabio, 2011. "Multivariate contemporaneous-threshold autoregressive models," Journal of Econometrics, Elsevier, pages 311-325.
    7. repec:lan:wpaper:2372 is not listed on IDEAS
    8. repec:lan:wpaper:2595 is not listed on IDEAS

    More about this item

    Keywords

    Smooth transition autoregressive model; nonlinearity; unit root; Brownian motion; bootstrap; critical values; Monte Carlo simulations; real exchange rates;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:hastef:0547. 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: (Helena Lundin). General contact details of provider: http://edirc.repec.org/data/erhhsse.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.