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Unit Root Tests in Three-Regime SETAR Models

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  • George Kapetanios

    (Queen Mary, University of London)

  • Yongcheol Shin

    (University of Edinburgh)

Abstract

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.

Suggested Citation

  • George Kapetanios & Yongcheol Shin, 2002. "Unit Root Tests in Three-Regime SETAR Models," Working Papers 465, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:465
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    References listed on IDEAS

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    More about this item

    Keywords

    Self-exciting threshold autoregressive models; Unit roots; Globally stationary processes; Threshold cointegration; Wald tests; Monte Carlo simulations; Real exchange rates;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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