Unit Root Tests in Three-Regime Setar Models

U of London Queen Mary Economics Working Paper No. 465

37 Pages Posted: 30 Jan 2003

Multiple version iconThere are 2 versions of this paper

Date Written: November 2002

Abstract

This paper proposes a simple direct testing procedure to distinguish a linear unit root process from a globally stationary three-regime self-exciting threshold autoregressive process. We derive the asymptotic null distribution of the Wald statistic, and show that it does not depend on unknown fixed threshold values. Monte Carlo evidence clearly indicates that the exponential average of the Wald statistic is more powerful than the Dickey-Fuller test that ignores the threshold nature under the alternative.

Keywords: Self-exciting Threshold Autoregressive Models, Unit Roots, Globally Stationary Processes, Threshold Cointegration, Wald Tests, Monte Carlo Simulations, Real Exchange Rates

JEL Classification: C12, C13, C32

Suggested Citation

Kapetanios, George and Shin, Yongcheol, Unit Root Tests in Three-Regime Setar Models (November 2002). U of London Queen Mary Economics Working Paper No. 465, Available at SSRN: https://ssrn.com/abstract=358262 or http://dx.doi.org/10.2139/ssrn.358262

George Kapetanios (Contact Author)

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Yongcheol Shin

Independent

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