Dickey–Fuller Type of Tests against Nonlinear Dynamic Models*

Changli He and Rickard Sandberg

Oxford Bulletin of Economics and Statistics, 2006, vol. 68, issue s1, 835-861

Abstract: In this paper, we introduce several test statistics testing the null hypothesis of a random walk (with or without drift) against models that accommodate a smooth nonlinear shift in the level, the dynamic structure and the trend. We derive analytical limiting distributions for all the tests. The power performance of the tests is compared with that of the unit‐root tests by Phillips and Perron [Biometrika (1988), Vol. 75, pp. 335–346], and Leybourne, Newbold and Vougas [Journal of Time Series Analysis (1998), Vol. 19, pp. 83–97]. In the presence of a gradual change in the deterministics and in the dynamics, our tests are superior in terms of power.

Date: 2006
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