Unit Root Testing with Stationary Covariates in the Framework of Asymmetric STAR Nonlinearity
-
Ching-Chuan Tsong
Abstract
This paper generalizes the univariate unit root test proposed by Sollis (2009) by adding correlated covariates for a power boost. The asymptotic distribution of the proposed test is derived, and the asymptotic critical values are tabulated. Simulation experiments are conducted to demonstrate that for both small and moderate sample sizes found in applications, the new test can exhibit an excellent control over the empirical sizes, and most importantly, it delivers larger power gains from inclusion of correlated covariates, as compared to the counterpart without covariates. An application to real exchange rates for 18 Asian countries suggests that our proposed test is able to unveil stronger evidence in favour of mean reversion in real exchange rates than the counterpart without covariates does. Moreover, several real exchange rates are tested to display asymmetries in the adjustment process towards their equilibrium values.
© 2012 by Walter de Gruyter GmbH & Co.
Artikel in diesem Heft
- Article
- Threshold Asymmetries in Equity Return Distributions: Statistical Tests and Investment Implications
- Estimation of a Nonlinear Taylor Rule Using Real-Time U.S. Data
- Predicting Stock Returns Using a Variable Order Markov Tree Model
- How Do You Make A Time Series Sing Like a Choir? Extracting Embedded Frequencies from Economic and Financial Time Series using Empirical Mode Decomposition
- The Transitional Dynamics of an Endogenous Growth Model: Generalizing Production Functions
- Unit Root Testing with Stationary Covariates in the Framework of Asymmetric STAR Nonlinearity
Artikel in diesem Heft
- Article
- Threshold Asymmetries in Equity Return Distributions: Statistical Tests and Investment Implications
- Estimation of a Nonlinear Taylor Rule Using Real-Time U.S. Data
- Predicting Stock Returns Using a Variable Order Markov Tree Model
- How Do You Make A Time Series Sing Like a Choir? Extracting Embedded Frequencies from Economic and Financial Time Series using Empirical Mode Decomposition
- The Transitional Dynamics of an Endogenous Growth Model: Generalizing Production Functions
- Unit Root Testing with Stationary Covariates in the Framework of Asymmetric STAR Nonlinearity
