Journal
STATISTICAL PAPERS
Volume 52, Issue 1, Pages 71-85Publisher
SPRINGER
DOI: 10.1007/s00362-009-0204-1
Keywords
Unit root test; Nonlinearities; Smooth transition; Nonstandard testing; Real effective exchange rates
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This paper proposes a new unit root test against a nonlinear exponential smooth transition autoregressive model. This model receives much attention in international macroeconomics as it has been successfully applied to a variety of financial time series. The new test is build upon the nonstandard testing approach of Abadir and Distaso (J Econom 140:695-718, 2007) who introduce a class of modified statistics for testing joint hypotheses when one of the alternatives is one-sided. The asymptotic properties of the suggested unit root test are derived. In a Monte Carlo study the popular Dickey-Fuller-type test proposed by Kapetanios et al. (J Econom 112:359-379, 2003) is compared to the new test. The results suggest that the new test is generally superior in terms of power. An application to a real effective exchange rate underlines its usefulness.
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