A New Test of Asymmetric Stationarity in the Presence of Deterministic Trends: Simulation and Empirical Evidence

Steven Cook
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Steven Cook: University of Wales Swansea, United Kingdom

The International Journal of Applied Economics, 2004, vol. 1, issue 1, 46-54

Abstract: Using local-to-unity detrending, a modified momentum-threshold autoregressive test is derived to allow the unit root hypothesis to be tested against an alternative of asymmetric stationarity about a deterministic trend. Monte Carlo evidence is presented to show the increased power of the proposed test in the presence of asymmetric adjustment relative to the familiar Dickey-Fuller (1979) test and the momentum-threshold autoregressive test of Enders and Granger (1998). The empirical relevance of the test is illustrated via an application to New Zealand national output over the period 1870-2001, where in contrast to findings obtained using alternative unit root tests, the unit root hypothesis is conclusively rejected.

Keywords: Unit root tests; local-to-unity detrending; momentum-threshold autoregression (search for similar items in EconPapers)
Date: 2004
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