A Unit Root Test Using a Fourier Series to Approximate Smooth Breaks

26 Pages Posted: 5 Jul 2012

See all articles by Walter Enders

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: August 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.

JEL Classification: C12, C22, E17

Suggested Citation

Enders, Walter and Lee, Junsoo, A Unit Root Test Using a Fourier Series to Approximate Smooth Breaks (August 2012). Oxford Bulletin of Economics and Statistics, Vol. 74, Issue 4, pp. 574-599, 2012, Available at SSRN: https://ssrn.com/abstract=2100689 or http://dx.doi.org/10.1111/j.1468-0084.2011.00662.x

Walter Enders (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
200 Alston Hall
Tuscaloosa, AL 35487
United States
205-348-8972 (Phone)
205-348-0590 (Fax)

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL Alabama 35487
United States
2053488978 (Phone)

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