A unit root test based on smooth transitions and nonlinear adjustment

Hepsağ A.

COMMUNICATIONS IN STATISTICS-SIMULATION AND COMPUTATION, vol.50, no.3, pp.625-632, 2021 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 50 Issue: 3
  • Publication Date: 2021
  • Doi Number: 10.1080/03610918.2018.1563154
  • Journal Name: COMMUNICATIONS IN STATISTICS-SIMULATION AND COMPUTATION
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Academic Search Premier, Applied Science & Technology Source, Business Source Elite, Business Source Premier, CAB Abstracts, Compendex, Computer & Applied Sciences, Veterinary Science Database, zbMATH, Civil Engineering Abstracts
  • Page Numbers: pp.625-632
  • Keywords: Smooth transitions, nonlinearity, unit root, ESTAR, PPP Hypothesis
  • Istanbul University Affiliated: Yes

Abstract

In this paper, we develop a new unit root testing procedure which considers jointly for structural breaks and nonlinear adjustment. The structural breaks are modeled by means of a logistic smooth transition function and nonlinear adjustment is modeled by means of an ESTAR model. The empirical size of test is quite close to the nominal one and in terms of power; the new unit root test is generally superior to the alternative test. The new unit root test presents good size properties and does not lead to over-rejections of the null hypothesis of the unit root.