|This centre is a member of The LSE Research Laboratory [RLAB]: CASE | CVER | CEP | FMG | SERC | STICERD||Cookies?|
Paper No' EM/2005/484: | Full paper
Save Reference as: BibTeX File | EndNote Import File
Keywords: Threshold autoregression; unit root test; threshold cointegration; residual-based block bootstrap
JEL Classification: C12; C15; C22
Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: Econometrics
Share this page: Google Bookmarks | Facebook | Twitter
Abstract:There is a growing literature on unit root testing in threshold autoregressive models. This paper makes two contributions to the literature. First, an asymptotic theory is developed for unit root testing in a threshold autoregression, in which the errors are allowed to be dependent and heterogeneous, and the lagged level of the dependent variable is employed as the threshold variable. The asymptotic distribution of the proposed Wald test is non-standard and depends on nuisance parameters. Second, the consistency of the proposed residual-based block bootstrap is established based on a newly developed asymptotic theory for this bootstrap. It is demonstrated by a set of Monte Carlo simulations that the Wald test exhibits considerable power gains over the ADF test that neglects threshold effects. The law of one price hypothesis is investigated among used car markets in the US.
Copyright © STICERD & LSE 2005 - 2015 | LSE, Houghton Street, London WC2A 2AE | Tel: +44(0)20 7955 6699 | Email: firstname.lastname@example.org | Site updated 27 May 2015