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A parametric stationarity test with smooth breaks

Author

Listed:
  • Tsong Ching-Chuan

    (National Chi Nan University, Department of Economics, Nantou, Taiwan)

  • Lee Cheng-Feng

    (National Kaohsiung University of Science and Technology, Department of Business Administration, Kaohsiung City, Taiwan)

  • Tsai Li Ju

    (Fu Jen Catholic University, Department of Finance and International Business, New Taipei City, Taiwan)

Abstract

We propose a test to investigate the stationarity null against the unit-root alternative where a Fourier component is employed to approximate nonlinear deterministic trend of unknown form. A parametric adjustment is also adopted to accommodate possible stationary error. The asymptotic distribution of the test under the null is derived, and the asymptotic critical values are tabulated. We also show that it is a consistent test. Even with small sample sizes often encountered in empirical applications, our parametric stationarity test employing Fourier term has good size and power properties when trend breaks are gradual. The validity of the Fisher hypothesis for 15 OECD countries is investigated to illustrate the usefulness of our test.

Suggested Citation

  • Tsong Ching-Chuan & Lee Cheng-Feng & Tsai Li Ju, 2019. "A parametric stationarity test with smooth breaks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 23(2), pages 1-14, April.
    • Handle: RePEc:bpj:sndecm:v:23:y:2019:i:2:p:14:n:1
    DOI: 10.1515/snde-2015-0091
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    References listed on IDEAS

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    More about this item

    Keywords

    Fourier component; nonlinear trend; stationarity test;
    All these keywords.

    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
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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