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A Comparison of Bootstrap and Monte Carlo Approaches to Testing for Symmetry in the Granger and Lee Error Correction Model

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  • Henry de-Graft Acquah

Abstract

In this paper, I investigate the power of the Granger and Lee model of asymmetry via bootstrap and Monte Carlo techniques. The simulation results indicate that sample size, level of asymmetry and the amount of noise in the data generating process are important determinants of the power of the test for asymmetry based on bootstrap and Monte Carlo techniques. Additionally, the simulation results suggest that both bootstrap and Monte Carlo methods are successful in rejecting the false null hypothesis of symmetric adjustment in large samples with small error size and strong levels of asymmetry. In large samples, with small error size and strong levels of asymmetry, the results suggest that asymmetry test based on Monte Carlo methods achieve greater power gains when compared with the test for asymmetry based on bootstrap. However, in small samples, with large error size and subtle levels of asymmetry, the results suggest that asymmetry test based on bootstrap is more powerful than those based on the Monte Carlo methods. I conclude that both bootstrap and Monte Carlo algorithms provide valuable tools for investigating the power of the test of asymmetry.

Suggested Citation

  • Henry de-Graft Acquah, 2013. "A Comparison of Bootstrap and Monte Carlo Approaches to Testing for Symmetry in the Granger and Lee Error Correction Model," Information Management and Business Review, AMH International, vol. 5(5), pages 240-244.
    • Handle: RePEc:rnd:arimbr:v:5:y:2013:i:5:p:240-244
    DOI: 10.22610/imbr.v5i5.1048
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    2. Cook, Steven & Holly, Sean & Turner, Paul, 1999. "The power of tests for non-linearity: the case of Granger-Lee asymmetry," Economics Letters, Elsevier, vol. 62(2), pages 155-159, February.
    3. Granger, C W J & Lee, T H, 1989. "Investigation of Production, Sales and Inventory Relationships Using Multicointegration and Non-symmetric Error Correction Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 145-159, Supplemen.
    4. Steven Cook & Sean Holly & Paul Turner, 1999. "DHSY revisited: the role of asymmetries," Applied Economics, Taylor & Francis Journals, vol. 31(7), pages 775-778.
    5. Stephan Cramon-Taubadel & Jens-Peter Loy, 1996. "Price Asymmetry in the International Wheat Market: Comment," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 44(3), pages 311-317, November.
    6. Steven Cook & Sean Holly & Paul Turner, 2000. "The Power of Tests for Non-Linearity: The Escribano–Pfann Model," Computational Economics, Springer;Society for Computational Economics, vol. 15(3), pages 223-226, June.
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