Testing for Nonstationary Long Memory Against Nonlinear Ergodic Models

U of London Queen Mary Economics Working Paper No. 500

39 Pages Posted: 21 Aug 2003

Date Written: July 2003

Abstract

Interest in the interface of nonstationarity and nonlinearity has been increasing in the econometric literature. This paper provides a formal method of testing for nonstationary long memory against the alternative of particular forms of nonlinerarity. The nonlinear models we consider are ESTAR and SETAR models. We provide analysis on the asymptotic properties of the tests and carry out a detailed Monte Carlo study. We find that the tests are in most cases able to dinstinguish between the competing models but in a few cases they are unable to do so raising the prospect that long memory and nonlinear processes may have similar characteristics in small samples.

Keywords: Nonlinearity, Long Memory, ESTAR Models, SETAR Models

JEL Classification: C12, C22, F31

Suggested Citation

Kapetanios, George and Shin, Yongcheol, Testing for Nonstationary Long Memory Against Nonlinear Ergodic Models (July 2003). U of London Queen Mary Economics Working Paper No. 500, Available at SSRN: https://ssrn.com/abstract=429100 or http://dx.doi.org/10.2139/ssrn.429100

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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