Testing for nonlinearity in G7 macroeconomic time series

2004

Using non-linear unit root tests this paper investigates non-stationarity of real GDP per capita for seven OECD countries over the period 1900-2000. Non-linear unit root tests are more powerful than traditional ADF statistics in rejecting the null unit root hypothesis. To this end we adopt a first order Fourier approximation that may capture many features of non-linear adjustment. Empirical results show that, contrary to what the linear ADF statistics suggest, stationarity characterizes six out of the seven countries.

ABSTRACT The recent financial crisis exposed the inability of traditional theoretical and empirical models to parsimoniously capture the rich dynamics of the economic environment. This has stimulated the interest of both academics and practitioners in the development and application of more sophisticated models. By allowing for the presence of nonlinearities, complex dynamics, multiple equilibria, structural breaks and spurious trends, these latter models resemble more closely the properties of economic and financial time series. In this article, we illustrate the flexibility of a family of econometric models, namely the exponential smooth transition autoregressive (ESTAR), to encompass several of the above characteristics. We then re-assess the power of the ESTAR unit root test developed by Kapetanios, Shin and Snell ((2003)22. Kapetanios , G. , Shin , Y. and Snell , A. 2003 . Testing for a unit root in the nonlinear STAR framework . Journal of Econometrics , 112 ( 2 ) : 359 – 79 . [CrossRef], [Web of Science ®]View all references) in the presence of nuisance parameters typically encountered in the literature and compare its performance with that of the augmented Dickey-Fuller and the Enders and Granger ((1998)15. Enders , W. and Granger , C. W.J. 1998 . Unit-root tests and asymmetric adjustment with an example using the term structure of interest rates . Journal of Business & Economic Statistics , 16 ( 3 ) : 304 – 11 . [Taylor & Francis Online], [Web of Science ®]View all references) tests. Our results show the lack of dominance of any particular test and that the power is not independent to priors about the nuisance parameters. Finally, we examine several asset price deviations from fundamentals and one hyper-inflation series and find contradictory results between the nonlinear fitted models and unit root tests. The findings highlight that new testing procedures with higher power are desirable in order to shed light on the behavior of financial and economic series.

Economic Modelling, 2012

The purpose of this paper is to examine the relevance of applying nonlinear panel unit root test to examine the non-linear mean reversion behaviors of real exchange rates. We find that nonlinear panel unit root test may achieve lower power performance as compared to its alternative of linear panel unit test when the data generating process does not contain significant non-linear components. This finding post cautions to researchers in modeling and testing real exchanges behavior. We also develop a modified series-specific nonlinear panel unit root test and find evidence in favor of purchasing power parity hypothesis for China's four ASEAN trading partners in the period of

Journal of the Italian Statistical Society, 1994

It is widely recognized tha.t the class of ARIMA models may fail to capture fully the dynamics of real phenomena since these are often characterized by strong nonlinear components. Thus, it is important that any preliminary analysis (or evaluation of model adequacy) includes a check on the linearity of the generating process. The paper reviews recent developments in the theory of testing nonlinearity in time series analysis.

Empirica, 1990

Im 6konomischen und 6konometrischen Modellbau stellt sich noch immer die Frage nach den langfristigen Eigenschaften einer Zeitreihe. Wird die beobachtete Nichtstationarit&t besser durch eine Trendbereinigung oder durch Differenzieren erfaSt? Wir untersuchen dreizehn 6sterreichische makro6konomische Zeitreihen auf Trend-versus Differenzenstationarit&t, wobei informelle Methoden und formelle Tests von Dickey-Fuller und Phillips-Perron verwendet werden. Um Auswirkungen der Saisonbereinigung auf die Tests zu vermeiden, wenden wir ein drittes, kLkzlich von Hylleberg -Engle -Granger -Yoo entwickeltes Verfahren auf die unbereinigten Daten an. Unabh&ngig yon der Saisonbereinigung weisen die empirischen Resultate darauf hin, dab die untersuchten Zeitreihen integriert erster Ordnung sind.

Russian Journal of Agricultural and Socio-Economic Sciences, 2013

This paper checks whether per capita real gross domestic product (GDP) series in 16 Asian countries are nonstationary or nonlinear and globally stationary during the period from 1970 to 2009, by applying the nonlinear unit root tests developed by Kapitanios, Shin and Snell (2003). In five out of the sixteen countries that is approximately one-third of the countries, the series are found to be stationary with asymmetric or nonlinear mean reversion. Analyses depict that nonlinear unit root test are suitable for some cases compare to the commonly used unit root test, Augmented Dickey-Fuller (ADF) and Dickey-Fuller Generalized Least Square (DF-GLS) tests.

2006

2021

This paper considers two classes of semiparametric nonlinear regression models, in which nonlinear components are introduced to reflect the nonlinear fluctuation in the mean. A general estimation and testing procedure for nonparametric time series regression under the α-mixing condition is introduced. Several test statistics for testing nonparametric significance, linearity and additivity in nonparametric and semiparametric time series econometric models are then constructed. The proposed test statistics are shown to have asymptotic normal distributions under their respective null hypotheses. Moreover, the proposed testing procedures are illustrated by several simulated examples. In addition, one of the proposed testing procedures is applied to a continuoustime model and implemented through a set of the US Federal interest rate data. Our research suggests that it is unreasonable to assume the linearity in the drift for the given data as required by some existing studies.

Applied Economics Letters, 2015

The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden.

2014

This thesis centers on introducing modern non-linear approaches for data analysis in economics and finance with special attention on business cycles and financial crisis. It is now well stated in the statistical and economic literature that major economic variables display non-linear behaviour over the different phases of the business cycle. As such, nonlinear approaches/models are required to capture the features of the data generating mechanism of inherently asymmetric realizations, since linear models are incapable of generating such behavior. In this respect, the thesis provides an interdisciplinary and open-minded approach to analyzing economic and financial systems in a novel way. The thesis presents approaches that are robust to extreme values, non-stationarity, applicable to both short and long data length, transparent and adaptive to any financial/economic time series. The thesis provides step-by-step procedures in analyzing economic/financial indicators by incorporating concepts based on surrogate data method, wavelets, phase space embedding, 'delay vector variance' (DVV) method and recurrence plots. The thesis also centers on transparent ways of identifying, dating turning points, evaluating impact of economic and financial crisis. In particular, the thesis also provides a procedure on how to anticipate future crisis and the possible impact of such crisis. The thesis shows that the incorporation of these techniques in learning the structure and interactions within and between economic and financial variables will be very useful in policy-making, since it facilitates the selection of appropriate processing methods, suggested by the data itself. In addition, a novel procedure to test for linearity and unit root in a nonlinear framework is proposed by introducing a new model-the MT-STAR model-which has similar properties of the ESTAR model but reduces the effects of the identification problem and can also account for asymmetry in the adjustment mechanism towards equilibrium. The asymptotic distributions of the proposed unit root test is non-standard and is derived. The power of the test is evaluated through a simulation study and some empirical illustrations on real exchange rates show its accuracy. Finally, the thesis defines a multivariate Self-Exciting Threshold Autoregressive with eXogenous input (MSETARX) models and present an estimation procedure for the parameters. The modeling procedure for the MSETARX models and problems of estimation are briefly considered.