Testing for a Linear Unit Root against Nonlinear Threshold Stationarity

George Kapetanios and Yongcheol Shin

Edinburgh School of Economics Discussion Paper Series from Edinburgh School of Economics, University of Edinburgh

Abstract: In this paper we propose a direct testing procedure to detect the presence of linear unit root against geometrically ergodic process defined by the self-exciting threshold autoregressive (SETAR) model with three regimes. Assuming that the process follows the random walk in the corridor regime, the null can be tested by the Wald test for the joint significance of the threshold autoregressive parameters under both lower and upper regimes. We prove that the suggested Wald test does not depend on unknown threshold values under the null at least asymptotically. We also derive its analytic asymptotic null distribution. Monte Carlo evidence clearly indicates that the exponential average of the Wald statistic is more powerful than the standard Dickey-Fuller test that ignores the threshold nature under the alternative.

Keywords: self-exciting threshold autogressive model; exponentially ergodic process; unit roots; thresholds cointegration; Wald tests; critical values; Monte Carlo simulations (search for similar items in EconPapers)
JEL-codes: C12 C13 C32 (search for similar items in EconPapers)
Pages: 25
Date: 2000-07
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:edn:esedps:60

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