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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

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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.

Item Type: Monograph (Working Paper)
Copyright, Publisher and Additional Information: The Sheffield Economics Research Paper (SERP) series offers a forum for the research output of the academic staff and research students of the Department of Economics, University of Sheffield. Papers are reviewed for quality and presentation by a departmental editor. However, the contents and opinions expressed remain the responsibility of the authors. All papers may be downloaded free on the understanding that the contents are preliminary and therefore permission from the author(s) should be sought before they are referenced.
Keywords: unit roots; nonlinear trends; exponential smooth transition; autoregressive model; structural change
Institution: The University of Sheffield
Academic Units: The University of Sheffield > Faculty of Social Sciences (Sheffield) > Department of Economics (Sheffield) > Sheffield Economics Research Papers Series
Depositing User: Miss Anthea Tucker
Date Deposited: 04 May 2012 15:59
Last Modified: 04 Jun 2014 10:14
Published Version: http://www.shef.ac.uk/economics/research/serps/yea...
Status: Published
Publisher: Department of Economics, University of Sheffield
Identification Number: 2012012
URI: http://eprints.whiterose.ac.uk/id/eprint/43892

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