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Testing for Cointegration in a Double-LSTR Framework

  • Claudia Grote
  • Philipp SibbertsenEmail author
Chapter
Part of the Advanced Studies in Theoretical and Applied Econometrics book series (ASTA, volume 48)

Abstract

This paper investigates the finite-sample properties of the smooth transition-based cointegration test proposed by Kapetanios et al. (Econ Theory 22:279–303, 2006) when the data generating process under the alternative hypothesis is a globally stationary second order LSTR model. The provided procedure describes an application to long-run equilibrium relations involving real exchange rates with symmetric behaviour. We utilise the properties of the double LSTR transition function that features unit root behaviour within the inner regime and symmetric behaviour in the outer regimes. Hence, under the null hypothesis we imply no cointegration and globally stationary D-LSTR cointegration under the alternative. As a result of the identification problem the limiting distribution derived under the null hypothesis is non-standard. The Double LSTR is capable of producing three-regime TAR nonlinearity when the transition parameter tends to infinity as well as generating exponential-type nonlinearity that closely approximates ESTR nonlinearity. Therefore, we find that the Double LSTR error correction model has power against both of these alternatives.

Keywords

Cointegration Test Error Correction Model Error Correction Term Cointegration Relation Auxiliary Regression 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  1. 1.Faculty of Economics and Management, Institute of StatisticsLeibniz University HannoverHannoverGermany

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