Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92944
Authors: 
Grote, Claudia
Sibbertsen, Philipp
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper, Wirtschaftswissenschaftliche Fakultät, Leibniz Universität Hannover 514
Abstract: 
This paper investigates the finite-sample properties of the smooth transition-based cointegration test proposed by Kapetanios et al. (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.
Subjects: 
Cointegration tests
LSTR
Monte carlo simulation
Nonlinear error correction
JEL: 
C12
C32
Document Type: 
Working Paper

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