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A new unit root test against ESTAR based on a class of modified statistics

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  • Robinson Kruse

Abstract

This paper proposes a new unit root test against a non-linear exponential smooth transition autoregressive (ESTAR) model. The new test is build upon the non-standard testing approach of Abadir and Distaso (2007) who introduce a class of modified statistics for testing joint hypotheses when one of the alternatives is one-sided. In a Monte Carlo study the popular Dickey-Fuller type test proposed by Kapetanios et al. (2003) is compared with 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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  • Robinson Kruse, 2011. "A new unit root test against ESTAR based on a class of modified statistics," Statistical Papers, Springer, vol. 52(1), pages 71-85, February.
    • Handle: RePEc:spr:stpapr:v:52:y:2011:i:1:p:71-85
    DOI: 10.1007/s00362-009-0204-1
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    1. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
    2. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
    3. Hansen, Bruce E., 1992. "Convergence to Stochastic Integrals for Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 8(4), pages 489-500, December.
    4. George Kapetanios, 2000. "Testing for a Unit Root against Nonlinear STAR Models," National Institute of Economic and Social Research (NIESR) Discussion Papers 164, National Institute of Economic and Social Research.
    5. Christoph Rothe & Philipp Sibbertsen, 2006. "Phillips-Perron-type unit root tests in the nonlinear ESTAR framework," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(3), pages 439-456, September.
    6. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-879, August.
    7. Abadir, Karim M. & Distaso, Walter, 2007. "Testing joint hypotheses when one of the alternatives is one-sided," Journal of Econometrics, Elsevier, vol. 140(2), pages 695-718, October.
    8. Rapach, David E. & Wohar, Mark E., 2006. "The out-of-sample forecasting performance of nonlinear models of real exchange rate behavior," International Journal of Forecasting, Elsevier, vol. 22(2), pages 341-361.
    9. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. "The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-1319, September.
    10. Sarantis, Nicholas, 1999. "Modeling non-linearities in real effective exchange rates," Journal of International Money and Finance, Elsevier, vol. 18(1), pages 27-45, January.
    11. Sandberg, Rickard, 2009. "Convergence To Stochastic Power Integrals For Dependent Heterogeneous Processes," Econometric Theory, Cambridge University Press, vol. 25(3), pages 739-747, June.
    12. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, June.
    13. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," The Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-180.
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    More about this item

    Keywords

    Unit root test; Nonlinearities; Smooth transition; Nonstandard testing; Real effective exchange rates;
    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
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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