S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University CAFO Working Papers, Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University

No 2009:6:
Testing for Unit Root against LSTAR Model: Wavelet Improvement under GARCH Distortion

Yushu Li () and Ghazi Shukur ()

Abstract: In this paper, we propose a Nonlinear Dickey-Fuller F test for unit root against first order Logistic Smooth Transition Autoregressive LSTAR (1) model with time as the transition variable. The Nonlinear Dickey-Fuller F test statistic is established under the null hypothesis of random walk without drift and the alternative model is a nonlinear LSTAR (1) model. The asymptotic distribution of the test is analytically derived while the small sample distributions are investigated by Monte Carlo experiment. The size and power properties of the test have been investigated using Monte Carlo experiment. The results have shown that there is a serious size distortion for the Nonlinear Dickey-Fuller F test when GARCH errors appear in the Data Generating Process (DGP), which lead to an over-rejection of the unit root null hypothesis. To solve this problem, we use the Wavelet technique to count off the GARCH distortion and to improve the size property of the test under GARCH error. We also discuss the asymptotic distributions of the test statistics in GARCH and wavelet environments. Finally, an empirical example is used to compare our test with the traditional Dickey-Fuller F test.

Keywords: Unit root Test; Dickey-Fuller F test; STAR model; GARCH (1: 1) Wavelet method; MODWT; (follow links to similar papers)

JEL-Codes: C15; C52; (follow links to similar papers)

27 pages, February 26, 2009

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

Nek_wp6_09.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Andreas Mångs ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:vxcafo:2009_006 This page was generated on 2014-12-14 19:28:30