A simple unit root test against asymmetric STAR nonlinearity with an application to real exchange rates in Nordic countries |
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Authors: | Robert Sollis |
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Affiliation: | Newcastle University Business School, Office 14, Ridley Building (3rd Floor), Newcastle upon Tyne, NE1 7RU, United Kingdom |
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Abstract: | Existing tests of the unit root hypothesis against the alternative hypothesis of exponential smooth transition autoregressive (ESTAR) nonlinearity implicitly assume symmetry under the alternative. This paper proposes a simple unit root test against the alternative of symmetric or asymmetric ESTAR nonlinearity. In the event that the unit root hypothesis is rejected, a simple test of symmetric versus asymmetric ESTAR nonlinearity is also proposed. The asymptotic distributions of the test statistics are straightforward to establish and finite-sample performance is studied with Monte Carlo simulations. An empirical application involving the real exchange rates of four Nordic countries against the U.S. dollar illustrates the usefulness of the new tests. |
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Keywords: | C12 C32 |
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