Jointly Testing Linearity and Nonstationarity within Threshold Autoregressions
7 Pages Posted: 26 May 2012
Date Written: May 25, 2012
We develop a test of the joint null hypothesis of linearity and nonstationarity within a threshold autoregressive process of order one with deterministic components. We derive the limiting distribution of a Wald type test statistic and subsequently investigate its local power and finite sample properties. We view our test as a useful diagnostic tool since a non rejection of our null hypothesis would remove the need to explore nonlinearities any further and support a linear autoregression with a unit root.
Keywords: Threshold Autoregressive Models, Unit Roots, Near Unit Roots, Brownian Bridge, Augmented Dickey Fuller Test
JEL Classification: C2, C5, C12
Suggested Citation: Suggested Citation