Linearity Testing in Time-Varying Smooth Transition Autoregressive Models under Unknown Degree of Persistency

Robinson Kruse and Rickard Sandberg ()
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Rickard Sandberg: Department of Economic Statistics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: Building upon the work of Vogelsang (1998) and Harvey and Leybourne (2007) we derive tests that are invariant to the order of integration when the null hypothesis of linearity is tested in time-varying smooth transition models. As heteroscedasticity may lead to spurious rejections of the null hypothesis, a White correction is also considered. The asymptotic properties of the tests are studied. Our Monte Carlo simulations suggest that the newly proposed tests exhibit good size and competitive power properties. An empirical application to US inflation data from the Post-Bretton Woods period underlines the empirical usefulness of our tests.

Keywords: Linearity testing; Linear I(0) and (1) models; Non-linear I(0) and I(1) models; White correction. (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Pages: 28
Date: 2010-07-26
New Economics Papers: this item is included in nep-ecm and nep-ets
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