Smooth Transitions, Asymmetric Adjustment and Unit Roots

Juan Cuestas and Javier Ordóñez

No 2012012, Working Papers from The University of Sheffield, Department of Economics

Abstract: The aim of this paper is to develop a unit root test that takes into account two sources of nonlinearites in data, i.e. asymmetric speed of mean reversion and structural changes. The asymmetric speed of mean reversion is modeled by means of a exponential smooth transition autoregression (ESTAR) function for the autoregressive parameter, whereas structural changes are approximated by a smooth transition in the deterministic components. We find that the proposed test performs well in terms of size and power, in particular when the autoregressive parameter is close to one.

Keywords: unit roots; nonlinear trends; exponential smooth transition; autoregressive model; structural change (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2012
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (1)

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Journal Article: Smooth transitions, asymmetric adjustment and unit roots (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2012012

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