Smooth transitions, asymmetric adjustment and unit roots
Cuestas, J.C. and Ordóñez, J.
(2012)
Smooth transitions, asymmetric adjustment and unit roots.
Working Paper.
Sheffield Economic Research Paper Series
.
Department of Economics, University of Sheffield
ISSN 1749-8368
Abstract
The aim of this paper is to develop a unit root test that takes into account two sources of nonlinearites in data, i.e. asymmetric speed of mean reversion and structural changes. The asymmetric speed of mean reversion is modeled by means of a exponential smooth transition autoregression (ESTAR) function for the autoregressive parameter, whereas structural changes are approximated by a smooth transition in the deterministic components. We find that the proposed test performs well in terms of size and power, in particular when the autoregressive parameter is close to one.
Metadata
Authors/Creators:
Cuestas, J.C.
Ordóñez, J.
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