Unit Root Tests for ESTAR Models
Since the introduction of augmented Dickey-Fuller unit root tests, many new types of unit root tests have been developed. Developments in nonlinear unit root tests occurred to overcome poor performance of standard linear unit root tests for nonlinear processes. Venetis et al. (2009) developed a unit root test for the k-ESTAR(p) model where k is the number of equilibrium levels and p is the order of autoregressive terms. Their approach may cause a singularity problem because some of the regressors might be collinear. To overcome the problem, they move collinear regressors into the error term. This paper extends the work of Venetis et al. (2009). Using a new approach given in this paper, the singularity problem can be avoided without worrying the issue of collinearity. For some cases, simulation results show that our approach is better than other unit root tests.
KeywordsESTAR model Unit root test Augmented Dickey-Fuller test
Unable to display preview. Download preview PDF.
- Berben, R., and D. van Dijk, 1999. Unit root tests and asymmetric adjustment: A reassessment. Unpublished manuscript, Tinbergen Institute, Erasmus University of Rotterdam.Google Scholar
- Cagan, P. 1956. The monetary dynamics of hyperinflantion. In Studies in the quantity theory of money ed. M. Friedman, 25–117. Chicago: University of Chicago Press.Google Scholar
- Eklund, B. 2003. A nonlinear alternative to the unit root hypothesis. SSE/EFI Working Paper Series in Economics and Finance 547, Department of Economic Statistics, Stockholm School of Economics, Stockholm, Sweden.Google Scholar
- Enders, W., and C. Granger. 1998. Unit root tests and asymmetric adjustment with an example using the trem structure of interest rates. J. Business Econ. Stat., 16, 304–311.Google Scholar
- He, C., and R. Sandberg. 2005. Dickey-Fuller type of tests against nonlinear dynamic models. SEE/EFI Working Paper Series in Economics and Finance 580, Department of Economic Statistics, Stockholm School of Economics, Stockholm, Sweden.Google Scholar
- Layard, R., S. Nickell, and R. Jackman. 1991. Unemployment: Macroeconomic performance and the labour market. Oxford; UK: Oxford University Press.Google Scholar
- Venetis, I., I. Paya, and D. Peel. 2009. ESTAR model with multiple fixed points: Testing and estimation. Working paper, Department od Economics, Lancaster University Management School, Lancaster, UK.Google Scholar