A parametric stationarity test with smooth breaks

Tsong Ching-Chuan, Lee Cheng-Feng and Tsai Li Ju ()
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Tsong Ching-Chuan: National Chi Nan University, Department of Economics, Nantou, Taiwan
Lee Cheng-Feng: National Kaohsiung University of Science and Technology, Department of Business Administration, Kaohsiung City, Taiwan
Tsai Li Ju: Fu Jen Catholic University, Department of Finance and International Business, New Taipei City, Taiwan

Studies in Nonlinear Dynamics & Econometrics, 2019, vol. 23, issue 2, 14

Abstract: We propose a test to investigate the stationarity null against the unit-root alternative where a Fourier component is employed to approximate nonlinear deterministic trend of unknown form. A parametric adjustment is also adopted to accommodate possible stationary error. The asymptotic distribution of the test under the null is derived, and the asymptotic critical values are tabulated. We also show that it is a consistent test. Even with small sample sizes often encountered in empirical applications, our parametric stationarity test employing Fourier term has good size and power properties when trend breaks are gradual. The validity of the Fisher hypothesis for 15 OECD countries is investigated to illustrate the usefulness of our test.

Keywords: Fourier component; nonlinear trend; stationarity test (search for similar items in EconPapers)
JEL-codes: C12 C22 E43 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/snde-2015-0091

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