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The power of asymmetric unit root tests under threshold and consistent-threshold estimation

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  • Steven Cook
  • Neil Manning

Abstract

The asymmetric unit root tests of Enders and Granger (Journal of Business and Economic Statistics, 16, 304-11, 1998) are examined using consistent threshold estimation and the original two-step procedure. In contrast to earlier studies, the ability of the tests to jointly reject the unit root and symmetry hypotheses is examined, thus permitting a fuller analysis of the tests' properties. Whilst the threshold autoregressive test is found to have little power in either its consistent or original forms, the consistent momentum-threshold autoregressive test is found to exhibit high power against a range of plausible alternatives when using newly derived critical values.

Suggested Citation

  • Steven Cook & Neil Manning, 2003. "The power of asymmetric unit root tests under threshold and consistent-threshold estimation," Applied Economics, Taylor & Francis Journals, vol. 35(14), pages 1543-1550.
    • Handle: RePEc:taf:applec:v:35:y:2003:i:14:p:1543-1550
    DOI: 10.1080/0003684032000125105
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    References listed on IDEAS

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    1. Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-261, March.
    2. Walter Enders, 2001. "Improved critical values for the Enders-Granger unit-root test," Applied Economics Letters, Taylor & Francis Journals, vol. 8(4), pages 257-261.
    3. Enders, Walter & Granger, Clive W J, 1998. "Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 304-311, July.
    4. Krane, Spencer D, 1994. "The Distinction between Inventory Holding and Stockout Costs: Implications for Target Inventories, Asymmetric Adjustment, and the Effect of Aggregation on Production Smoothing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 117-136, February.
    5. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
    6. Pippenger, Michael K & Goering, Gregory E, 1993. "A Note on the Empirical Power of Unit Root Tests under Threshold Processes," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 473-481, November.
    7. Douglas Gale, 1996. "Delay and Cycles," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(2), pages 169-198.
    8. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
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    Cited by:

    1. Huimin Chung & Tsung-Wu Ho & Ling-Ju Wei, 2005. "The dynamic relationship between the prices of ADRs and their underlying stocks: evidence from the threshold vector error correction model," Applied Economics, Taylor & Francis Journals, vol. 37(20), pages 2387-2394.
    2. Steven Cook, 2007. "Further results on the detection of changes in persistence in linear time series," Applied Economics Letters, Taylor & Francis Journals, vol. 14(2), pages 145-150.
    3. Cook, Steven, 2006. "The impact of GARCH on asymmetric unit root tests," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 369(2), pages 745-752.
    4. Cook, Steven, 2008. "Joint maximum likelihood estimation of unit root testing equations and GARCH processes: Some finite-sample issues," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 77(1), pages 109-116.
    5. Atanu Ghoshray & Sushil Mohan, 2021. "Coffee price dynamics: an analysis of the retail-international price margin [Commodity dependence and development: suggestions to tackle the commodities problem]," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 48(4), pages 983-1006.

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