Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/56309
Authors: 
Eklund, Bruno
Year of Publication: 
2003
Series/Report no.: 
SSE/EFI Working Paper Series in Economics and Finance 547
Abstract: 
This paper considers testing the unit root hypothesis against a smooth transition autoregressive model as the alternative. The model specification makes it possible to discriminate between nonstationary random walk and stationary nonlinear processes. Some new limit results are presented, extending earlier work, and two F type tests are proposed. Small sample simulations show some size distortions, why a bootstrap method for estimating p-values to the tests are considered. Power simulations show some gain in power, compared to the common Augmented Dickey-Fuller tests. Finally, the two proposed F type tests are applied on a number of real exchange rates. For several of the exchange rates considered the linear unit root is rejected in favor of the stationary nonlinear model, supporting the purchasing power parity hypothesis.
Subjects: 
Smooth transition autoregressive model
nonlinearity
unit root
Brownian motion
bootstrap
critical values
Monte Carlo simulations
real exchange rates
JEL: 
C22
C52
F31
Document Type: 
Working Paper

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