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Unit Root Tests in Three-Regime SETAR Models

  • George Kapetanios

    ()

    (Queen Mary, University of London)

  • Yongcheol Shin

    (University of Edinburgh)

This paper proposes a simple direct testing procedure to distinguish a linear unit root process from a globally stationary three-regime self-exciting threshold autoregressive process. We derive the asymptotic null distribution of the Wald statistic, and show that it does not depend on unknown fixed threshold values. Monte Carlo evidence clearly indicates that the exponential average of the Wald statistic is more powerful than the Dickey-Fuller test that ignores the threshold nature under the alternative.

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File URL: http://www.econ.qmul.ac.uk/papers/doc/wp465.pdf
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Paper provided by Queen Mary University of London, School of Economics and Finance in its series Working Papers with number 465.

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Date of creation: Nov 2002
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Handle: RePEc:qmw:qmwecw:wp465
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  1. 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.
  2. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  3. Anderson, Heather M, 1997. "Transaction Costs and Non-linear Adjustment towards Equilibrium in the US Treasury Bill Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(4), pages 465-84, November.
  4. Tweedie, Richard L., 1975. "Sufficient conditions for ergodicity and recurrence of Markov chains on a general state space," Stochastic Processes and their Applications, Elsevier, vol. 3(4), pages 385-403, October.
  5. Frederic Bec & Melika Ben Salem & Marine Carrasco, 2004. "Tests for Unit-Root versus Threshold Specification With an Application to the Purchasing Power Parity Relationship," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 382-395, October.
  6. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
  7. Shin, Dong Wan & Lee, Oesook, 2001. "Tests for Asymmetry in Possibly Nonstationary Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 233-44, April.
  8. Bec, Frederique & Guay, Alain & Guerre, Emmanuel, 2008. "Adaptive consistent unit-root tests based on autoregressive threshold model," Journal of Econometrics, Elsevier, vol. 142(1), pages 94-133, January.
  9. n/a, 2001. "Balance of payments prospects in EMU," NIESR Discussion Papers 164, National Institute of Economic and Social Research.
  10. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  11. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  12. Pippenger, Michael K & Goering, Gregory E, 1993. "A Note on the Empirical Power of Unit Root Tests under Threshold Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 473-81, November.
  13. Jayasri Dutta, 2002. "Dread of Depreciation; Measuring Real Exchange Rate Interventions," IMF Working Papers 02/63, International Monetary Fund.
  14. 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.
  15. Lo, Ming Chien & Zivot, Eric, 2001. "Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 533-576, September.
  16. Christos Ioannidis & David A. Peel & Michael J. Peel, 2003. "The Time Series Properties of Financial Ratios: Lev Revisited," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(5-6), pages 699-714.
  17. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  18. George Kapetanios & Yongcheol Shin & Andy Snell, 2003. "Testing for Cointegration in Nonlinear STAR Error Correction Models," Working Papers 497, Queen Mary University of London, School of Economics and Finance.
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