Unit root test in a threshold autoregression: asymptotic theory and residual-based block bootstrap

Myung Hwan Seo

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: There is a growing literature on unit root testing in threshold autoregressive models. This paper makes two contributions to the literature. First, an asymptotic theory is developed for unit root testing in a threshold autoregression, in which the errors are allowed to be dependent and heterogeneous, and the lagged level of the dependent variable is employed as the threshold variable. The asymptotic distribution of the proposed Wald test is non-standard and depends on nuisance parameters. Second, the consistency of the proposed residual-based block bootstrap is established based on a newly developed asymptotic theory for this bootstrap. It is demonstrated by a set of Monte Carlo simulations that the Wald test exhibits considerable power gains over the ADF test that neglects threshold effects. The law of one price hypothesis is investigated among used car markets in the US.

Keywords: Threshold autoregression; unit root test; threshold cointegration; residual-based block bootstrap (search for similar items in EconPapers)
JEL-codes: C12 C15 C22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/6836/ Open access version. (application/pdf)

Related works:
Journal Article: UNIT ROOT TEST IN A THRESHOLD AUTOREGRESSION: ASYMPTOTIC THEORY AND RESIDUAL-BASED BLOCK BOOTSTRAP (2008)
Working Paper: Unit Root Test in a Threshold Autoregression: Asymptotic Theory and Residual-based Block Bootstrap (2005)
Working Paper: Unit Root Test in a Threshold Autoregression: Asymptotic Theory and Residual-based Block Bootstrap (2004)
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