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Testing for a unit root in the nonlinear STAR framework by George Kapetanios; Yongcheol Shin; Andy Snell is a Economics, Econometrics and Finance article available to read on EtoBox.

What is Testing for a unit root in the nonlinear STAR framework about?

In this paper, we propose a simple testing procedure to detect the presence of nonstationarity against nonlinear but globally stationary exponential smooth transition autoregressive processes. We provide an advance over the existing literature in three senses. First, we derive the limiting nonstandard distribution of the proposed tests. Second, we ÿnd via Monte Carlo simulation exercises that under the alternative of a globally stationary ESTAR process, our proposed test has better power than the standard Dickey-Fuller test, in the region of the null, where the processes are highly persistent. Third, we provide an application to ex post real interest rates and bilateral real exchange rates with the US Dollar from the 11 major OECD countries, and ÿnd our test is able to reject a unit root in many cases, whereas the linear DF tests fail, providing some evidence of nonlinear mean-reversion in both real interest and exchange rates.

Who reads Testing for a unit root in the nonlinear STAR framework?

Author

George Kapetanios; Yongcheol Shin; Andy Snell

Publisher

Elsevier Science; Elsevier ; Elsevier BV (ISSN 0304-4076)

Published

2003

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)