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A smooth permanent surge process

Author

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  • González Gómez, Andrés

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

Abstract

In this paper we introduce the Smooth Permanent Surge [SPS] model. The model is an integrated non lineal moving average process with possibly unit roots in the moving average coefficients. The process nests the Stochastic Permanent Break [STOPBREAK] process by Engle and Smith (1999) and in a limiting case it converges to Threshold Integrated Moving Average [TIMA] models by Gonzalo and Martinez (2003). A test of SPS against STOPBREAK process is presented. Additionally, we introduce a new test for testing SPS process against the random walk. The small sample properties of these tests are investigated by Monte Carlo experiments. An application to the stock markets is presented.

Suggested Citation

  • González Gómez, Andrés, 2004. "A smooth permanent surge process," SSE/EFI Working Paper Series in Economics and Finance 572, Stockholm School of Economics.
  • Handle: RePEc:hhs:hastef:0572
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    File URL: http://swopec.hhs.se/hastef/papers/hastef0572.pdf
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    References listed on IDEAS

    as
    1. Martínez, Oscar & Gonzalo, Jesús, 2003. "Threshold integrated moving average models: does size matter? maybe so," DE - Documentos de Trabajo. Economía. DE 16008, Universidad Carlos III de Madrid. Departamento de Economía.
    2. 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 735-763, November.
    3. Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, pages 93-115.
    4. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, pages 1383-1414.
    5. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, pages 59-75.
    6. Dufour, Jean-Marie, 2006. "Monte Carlo tests with nuisance parameters: A general approach to finite-sample inference and nonstandard asymptotics," Journal of Econometrics, Elsevier, pages 443-477.
    7. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, pages 484-489.
    8. Robert F. Engle & Aaron D. Smith, 1999. "Stochastic Permanent Breaks," The Review of Economics and Statistics, MIT Press, pages 553-574.
    9. Granger, Clive W. J. & Swanson, Norman R., 1997. "An introduction to stochastic unit-root processes," Journal of Econometrics, Elsevier, pages 35-62.
    10. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, pages 65-99.
    11. Andrews, Donald W.K., 1988. "Laws of Large Numbers for Dependent Non-Identically Distributed Random Variables," Econometric Theory, Cambridge University Press, vol. 4(03), pages 458-467, December.
    12. Robert F. Engle & Aaron D. Smith, 1999. "Stochastic Permanent Breaks," The Review of Economics and Statistics, MIT Press, pages 553-574.
    13. Granger, C. W. J. & Andersen, Allan, 1978. "On the invertibility of time series models," Stochastic Processes and their Applications, Elsevier, vol. 8(1), pages 87-92, November.
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    More about this item

    Keywords

    Linearity test; Monte Carlo testing; Smooth transitions; Moving Averages Models; Permanent Shock; Transitory Shocks.;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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