Journal
ECONOMETRICS JOURNAL
Volume 10, Issue 1, Pages 149-165Publisher
OXFORD UNIV PRESS
DOI: 10.1111/j.1368-423X.2007.00203.x
Keywords
nonlinearity testing; Wald tests; exchange rates
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In this paper, we present a procedure for testing the null hypothesis of linearity in a time series against the alternative of non-linearity. Adapting the robust Wald-type testing methods of Vogelsang ( 1998 Econometrica 66, 123 - 48), 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 non-linearity of either form. Finite sample simulation evidence, together with empirical evidence from an application to US Dollar real exchange rates, suggests that our procedure should work well in practice.
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