Unit root tests and assymmetric adjustment
Standard unit root tests are misspecified in case the variable of interest is stationary but displays asymmetric adjustment towards its long-run equilibrium and, consequently, may suffer from a lack of power against such alternatives. This observation recently has aroused interest in developing test statistics which can be used to test the null hypothesis of a unit root against the alternative of stationarity with asymmetric adjustment. In this paper we reconsider the test statistics put forward by Enders and Granger (1998). We point out an important deficiency of their tests and develop an alternative one which is based on more solid statistical grounds. Monte Carlo experiments demonstrate that our new test outperforms standard unit roots and the tests of Enders and Granger (1998) in terms of power against the alternative of interest. An empirical illustration involving the forward premium is provided to demonstrate the practical usefulness of our test statistic.
|Keywords||asymptotic distribution, forward premium, threshold autoregressive process, unidentified nuisance parameter|
Berben, R-P., & van Dijk, D.J.C.. (1999). Unit root tests and assymmetric adjustment (No. EI 9902-/A). Retrieved from http://hdl.handle.net/1765/1558