Change search
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf
Testing for nonlinear unit roots in the presence of a structural break with an application to the qualified PPP during the 1997 Asian financial crisis
Jönköping University, Jönköping International Business School, JIBS, Economics. Department of Applied Statistics, College of Business and Economics, University of Rwanda, Kigali, Rwanda.ORCID iD: 0000-0001-6611-4762
Jönköping University, Jönköping International Business School, JIBS, Statistics.ORCID iD: 0000-0002-4535-3630
Jönköping University, Jönköping International Business School, JIBS, Statistics.ORCID iD: 0000-0003-3144-2218
2018 (English)In: International journal of finance and economics, ISSN 1076-9307, E-ISSN 1099-1158Article in journal (Refereed) Epub ahead of print
Abstract [en]

This paper applies Monte Carlo simulations to evaluate the size and power properties in the presence of a structural break, for the standard Augmented Dickey-Fuller (ADF) test versus nonlinear exponential smooth transition autoregressive unit root tests. The break causes the tests to be undersized, and the statistical power considerably decreases. Moreover, the effect is intensified in small samples and very much increased for more persistent nonlinear series. As a remedy, we modify the standard ADF and exponential smooth transition autoregressive unit root tests in order to adjust for a structural break. This improves both the power and the size considerably, even though the empirical size still is lower than the nominal one. More persistent series are more affected by structural breaks, and the new tests are most powerful under the existence of a rather persistent nonlinear data generating process (which is an empirically relevant and common type of data generating process). The proposed tests are applied to investigate mean reversion in the real effective exchange rates of 5 East and Southeast Asian countries, taking into account the structural change in exchange rate regime brought about by the 1997 Asian financial crisis. The empirical findings corroborate our simulation results; the modified more powerful tests are able to reject the unit root in all 5 countries, whereas the tests that do not consider the structural break could only reject in one of these cases.

Place, publisher, year, edition, pages
John Wiley & Sons, 2018.
Keywords [en]
exchange rates, Monte Carlo simulations, nonlinearity, qualified PPP, structural break, unit root test
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:hj:diva-38379DOI: 10.1002/ijfe.1613ISI: XYZScopus ID: 2-s2.0-85041171914Local ID: IHHÖvrigtISOAI: oai:DiVA.org:hj-38379DiVA, id: diva2:1172024
Available from: 2018-01-09 Created: 2018-01-09 Last updated: 2018-02-13

Open Access in DiVA

No full text in DiVA

Other links

Publisher's full textScopus

Authority records BETA

Habimana, OlivierMånsson, KristoferSjölander, Pär

Search in DiVA

By author/editor
Habimana, OlivierMånsson, KristoferSjölander, Pär
By organisation
JIBS, EconomicsJIBS, Statistics
In the same journal
International journal of finance and economics
Probability Theory and Statistics

Search outside of DiVA

GoogleGoogle Scholar

doi
urn-nbn

Altmetric score

doi
urn-nbn
Total: 130 hits
CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf