A powerful test for linearity when the order of integration is unknown [Revised to become No. 07/06 above]
In this paper we propose a test of the null hypothesis of time series linearity against a nonlinear alternative, when uncertainty exists as to whether or not the series contains a unit root. We provide a test statistic that has the same limiting null critical values regardless of whether the series under consideration is generated from a linear I(0) or linear I(1) process, and is consistent against nonlinearity of either form, being asymptotically equivalent to the efficient test in each case. Finite sample simulations show that the new procedure has good size control and offers substantial power gains over the recently proposed robust linearity test of Harvey and Leybourne (2007).
|Date of creation:||Oct 2007|
|Date of revision:|
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- Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
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- Tom Doan, . "RATS programs to replicate Gray's 1996 Regime Switching GARCH paper," Statistical Software Components RTZ00080, Boston College Department of Economics.
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