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A Unit Root Test Using a Fourier Series to Approximate Smooth BreaksWalter EndersUniversity of Alabama - Department of Economics, Finance and Legal Studies Junsoo LeeUniversity of Alabama - Department of Economics, Finance and Legal Studies August 2012 Oxford Bulletin of Economics and Statistics, Vol. 74, Issue 4, pp. 574-599, 2012 Abstract: We develop a unit‐root test based on a simple variant of Gallant's (1981) flexible Fourier form. The test relies on the fact that a series with several smooth structural breaks can often be approximated using the low frequency components of a Fourier expansion. Hence, it is possible to test for a unit root without having to model the precise form of the break. Our unit‐root test employing Fourier approximation has good size and power for the types of breaks often used in economic analysis. The appropriate use of the test is illustrated using several interest rate spreads.
Number of Pages in PDF File: 26 JEL Classification: C12, C22, E17 Accepted Paper SeriesDate posted: July 5, 2012Suggested CitationContact Information
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