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A New Nonlinear Wavelet-Based Unit Root Test with Structural Breaks

Author

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  • Aydin, Mucahit

Abstract

In the literature, there are no nonlinear wavelet-based unit root tests with structural breaks. To fill this gap in the literature, this study proposes new wavelet-based unit root tests that take into account nonlinearity and structural breaks. According to Monte Carlo simulations results, the proposed tests show better size and power properties as the sample size increases. Moreover, the results indicate that the Fourier Wavelet-based KSS (FWKSS) unit root test is more powerful than the WKSS test in the presences of structural breaks.

Suggested Citation

  • Aydin, Mucahit, 2019. "A New Nonlinear Wavelet-Based Unit Root Test with Structural Breaks," MPRA Paper 98693, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98693
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    File URL: https://mpra.ub.uni-muenchen.de/98693/1/MPRA_paper_98693.pdf
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    References listed on IDEAS

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    1. 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.
    2. Burak Alparslan Eroğlu & Barış Soybilgen, 2018. "On the Performance of Wavelet Based Unit Root Tests," JRFM, MDPI, vol. 11(3), pages 1-22, August.
    3. Walter Enders & Junsoo Lee, 2012. "A Unit Root Test Using a Fourier Series to Approximate Smooth Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(4), pages 574-599, August.
    4. Gençay, Ramazan & Gençay, Ramazan & Selçuk, Faruk & Whitcher, Brandon J., 2001. "An Introduction to Wavelets and Other Filtering Methods in Finance and Economics," Elsevier Monographs, Elsevier, edition 1, number 9780122796708.
    5. Fan, Yanqin & Gençay, Ramazan, 2010. "Unit Root Tests With Wavelets," Econometric Theory, Cambridge University Press, vol. 26(5), pages 1305-1331, October.
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    1. Aydin, Mucahit & Pata, Ugur Korkut, 2020. "Are shocks to disaggregated renewable energy consumption permanent or temporary for the USA? Wavelet based unit root test with smooth structural shifts," Energy, Elsevier, vol. 207(C).
    2. Badri Narayan Rath & Vaseem Akram, 2022. "Popularity of Unit Root Tests - A Review," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 2(4), pages 1-5.

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    More about this item

    Keywords

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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