Threshold Unit Root Tests with Smooth Transitions

Mehmet Özcan () and Funda Yurdakul ()
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Mehmet Özcan: Karamanoglu Mehmetbey University
Funda Yurdakul: Ankara Hacı Bayram Veli University

A chapter in Advances in Econometrics, Operational Research, Data Science and Actuarial Studies, 2022, pp 13-29 from Springer

Abstract: Abstract Since threshold autoregressive models were discovered, many unit root tests have been developed to test the unit root null hypothesis when considering regime change. On the other hand, Sollis, J Time Ser Anal 25:409–417, 2004, indicates that a threshold unit root test could be combined with some smooth transition logistic functions which are introduced by Leybourne et al., J Time Ser Anal 19:83–97, 1998. This paper investigates whether the Caner and Hansen, Econometrica 69:1555–1596, 2001, unit root test could be expanded with smooth transition functions and demonstrates the performance of this new unit root testing process with Monte Carlo simulations. Simulation results for finite sample properties show reasonable empirical size and power values. Also, the proposed unit root testing procedure is used to test unit root null hypothesis for industrial production indices of United States of America and Turkey.

Keywords: Threshold model; Smooth transition; Unit root; Monte Carlo simulations (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-030-85254-2_2

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DOI: 10.1007/978-3-030-85254-2_2

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