A Powerful Test for Linearity When the Order of Integration is Unknown

David Harvey, Stephen Leybourne () and Xiao Bin ()
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Xiao Bin: University of Nottingham

Studies in Nonlinear Dynamics & Econometrics, 2008, vol. 12, issue 3, 24

Abstract: In this paper we propose a test of the null hypothesis of time series linearity against a nonlinear alternative, when uncertainty exists as to whether or not the series contains a unit root. We provide a test statistic that has the same limiting null critical values regardless of whether the series under consideration is generated from a linear I(0) or linear I(1) process, and is consistent against nonlinearity of either form, being asymptotically equivalent to the efficient test in each case. Finite sample simulations show that the new procedure has better size control and offers substantial power gains over the recently proposed robust linearity test of Harvey and Leybourne (2007).

Date: 2008
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Working Paper: A powerful test for linearity when the order of integration is unknown (2007)
Working Paper: A powerful test for linearity when the order of integration is unknown (2007)
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DOI: 10.2202/1558-3708.1582

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