Bubbles or Volatility: A Markov-Switching Unit Root Test with Regime-Varying Error Variance

Shuping Shi

ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics

Abstract: We demonstrate that the constant variance assumption in the Markov-switching Augmented Dickey-Fuller (ADF) test proposed by Hall, Psaradakis and Sola (1999) may result in the misjudgement of bubbles. Upon relaxing this assumption to allow for regime-varying error variances in the Markov-switching ADF test (referred to as the MSADF-RV test), we revisit the integration properties of the money base, consumer price and exchange rate in Argentina from January 1983 to November 1989. Based on the MSADF-RV test, we observe the occurrence of volatility switches in the exchange rate and the consumer price instead of observing bubbles in these two series as in Hall, Psaradakis and Sola (1999)

JEL-codes: C22 (search for similar items in EconPapers)
Pages: 14 Pages
Date: 2010-06
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2010-524

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