A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks
29 Pages Posted: 8 May 2006
Abstract
Macroeconomic variables have been shown to display a wide variety of structural breaks of unknown number, duration and form. This poses a challenge since improperly modelled breaks can result in a seriously misspecified model. In this paper, we develop a new test for stationarity that approximates the unknown form of structural breaks using a selected frequency component from a Fourier approximation. Our proposed test performs quite well when breaks are gradual, and shows reasonable power. The appropriate use of the test is illustrated by examining real exchange rates in the post-Bretton Woods period.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Tests for Stationarity in Series with Endogenously Determined Structural Change
By David I. Harvey and Terence C. Mills
-
Asymmetric Adjustment and Smooth Transitions: A Combination of Some Unit Root Tests
-
Stationarity Testing Under Smooth Transition Trends: Asymptotics Results and Some Empirical Evidence