Asymmetric adjustment and smooth transitions: a combination of some unit root tests

Robert Sollis

Journal of Time Series Analysis, 2004, vol. 25, issue 3, 409-417

Abstract: Abstract. Conventional Dickey–Fuller unit root tests have been generalized to allow for nonlinearity under the alternative hypothesis by Enders and Granger [Journal of Business Economics and Statistics, 16 (1998) 304] (EG) and Leybourne, Newbold and Vougas [Journal of Time Series Analysis, 19 (1998) 83] (LNV). EG focus on the case of asymmetric adjustment modelled as threshold autoregression, while LNV extend the concept of trend stationarity to that of stationarity around a smooth transition between deterministic linear trends. In this study, the EG and LNV methodologies are combined to develop tests of the null hypothesis of a unit root, that under the alternative hypothesis allow for stationary asymmetric adjustment around a smooth transition between deterministic linear trends. The empirical power of the combined tests is briefly investigated and an empirical application to time series on aggregate industrial production in the UK and the US is considered.

Date: 2004
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