Selected Problems in the Analysis of Nonstationary & Nonlinear Time Series

Dilip M. Nachane

Journal of Quantitative Economics, 2011, vol. 9, issue 1, 1-17

Abstract: There are several reasons why non-linearity and non-stationarity could occur simultaneously in economic models including (i) frictions in markets (ii) asymmetric adjustment mechanisms and (iii) markets (esp. financial markets) being subject to episodes of turbulence and volatility. The task of unravelling nonlinearity from nonstationarity is extremely complex and essentially involves the testing of a sequence of nested hypotheses. In recent years a number of contributions have been occurring in the literature both in the time domain and frequency domain. Several of these approaches are discussed here and we also touch upon the issue of nonlinear cointegration. Both parametric and non-parametric tests for nonlinear cointegration are discussed and their properties analyzed.

Date: 2011
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