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A unit root test based on smooth transitions and nonlinear adjustment

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  • Hepsag, Aycan

Abstract

In this paper, we develop a new unit root testing procedure which considers jointly for structural breaks and nonlinear adjustment. The structural breaks are modeled by means of a logistic smooth transition function and nonlinear adjustment is modeled by means of an ESTAR model. The empirical size of test is quite close to the nominal one and in terms of power, the new unit root test is generally superior to the alternative test.

Suggested Citation

  • Hepsag, Aycan, 2017. "A unit root test based on smooth transitions and nonlinear adjustment," MPRA Paper 81788, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:81788
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    File URL: https://mpra.ub.uni-muenchen.de/83429/9/MPRA_paper_83429.pdf
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    References listed on IDEAS

    as
    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. Sollis, Robert, 2009. "A simple unit root test against asymmetric STAR nonlinearity with an application to real exchange rates in Nordic countries," Economic Modelling, Elsevier, vol. 26(1), pages 118-125, January.
    3. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    4. Christopoulos, Dimitris K. & León-Ledesma, Miguel A., 2010. "Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1076-1093, October.
    5. Junsoo Lee & Mark C. Strazicich, 2003. "Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1082-1089, November.
    6. Juan Carlos Cuestas & Javier Ord��ez, 2014. "Smooth transitions, asymmetric adjustment and unit roots," Applied Economics Letters, Taylor & Francis Journals, vol. 21(14), pages 969-972, September.
    7. 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.
    8. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
    9. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    10. Stephen Leybourne & Paul Newbold & Dimitrios Vougas, 1998. "Unit roots and smooth transitions," Journal of Time Series Analysis, Wiley Blackwell, vol. 19(1), pages 83-97, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Smooth Transition; nonlinearity; unit root; ESTAR;
    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

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