Details
| Original language | English |
|---|---|
| Title of host publication | Empirical Economic and Financial Research |
| Subtitle of host publication | Theory, Methods and Practice |
| Pages | 437-450 |
| Number of pages | 14 |
| Publication status | Published - 2015 |
Publication series
| Name | Advanced Studies in Theoretical and Applied Econometrics |
|---|---|
| Volume | 48 |
| ISSN (Print) | 1570-5811 |
| ISSN (electronic) | 2214-7977 |
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
- Auxiliary Regression, Cointegration Relation, Cointegration Test, Error Correction Model, Error Correction Term
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
Cite this
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Empirical Economic and Financial Research: Theory, Methods and Practice. 2015. p. 437-450 (Advanced Studies in Theoretical and Applied Econometrics; Vol. 48).
Research output: Chapter in book/report/conference proceeding › Contribution to book/anthology › Research › peer review
}
TY - CHAP
T1 - Testing for Cointegration in a Double-LSTR Framework
AU - Grote, Claudia
AU - Sibbertsen, Philipp
PY - 2015
Y1 - 2015
N2 - 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.
AB - 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.
KW - Auxiliary Regression
KW - Cointegration Relation
KW - Cointegration Test
KW - Error Correction Model
KW - Error Correction Term
UR - http://www.scopus.com/inward/record.url?scp=85064914115&partnerID=8YFLogxK
U2 - 10.1007/978-3-319-03122-4_27
DO - 10.1007/978-3-319-03122-4_27
M3 - Contribution to book/anthology
AN - SCOPUS:85064914115
T3 - Advanced Studies in Theoretical and Applied Econometrics
SP - 437
EP - 450
BT - Empirical Economic and Financial Research
ER -