Testing for Unit Roots with Breaks: Evidence on the Great Crash and the Unit Root Hypothesis Reconsidered

Nunes, Luís; Newbold, Paul; Kuan, Chung Ming

doi:10.1111/1468-0084.00076

Cited by 172 publications

(108 citation statements)

References 10 publications

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“…When considering unit root tests that allow for structural breaks, there may be a case of size distortion that leads to spurious rejection of the null hypothesis of a unit root when the actual time series process contains a unit root with a structural break (Nunes et al 1997). The test developed by Lumsdaine and Papell (1997) suffers from the same size distortion problems and consequent spurious rejection of the null hypothesis (Lee and Strazicich 2003).…”

Section: A Econometric Methodology: Estimating Trendsmentioning

confidence: 99%

Underlying Trends and International Price Transmission of Agricultural Commodities

Ghoshray

2011

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Atanu Ghoshray is a Lecturer in Economics at the University of Bath. The author thanks M.S. Gochoco-Bautista, S. Jha, and E. San Andres for insightful comments on an earlier version of the draft, and P. Quising for providing the data. This paper represents the views of the author, who accepts responsibility for any errors in the paper. The views expressed in this paper are those of the author(s) and do not necessarily reflect the views or policies of the Asian Development Bank. Terms of use: Documents in Asian DevelopmentThe ADB Economics Working Paper Series is a forum for stimulating discussion and eliciting feedback on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.

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Section: A Econometric Methodology: Estimating Trendsmentioning

confidence: 99%

Underlying Trends and International Price Transmission of Agricultural Commodities

Ghoshray

2011

SSRN Journal

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“…Means rejection of the null hypothesis would imply rejection of a unit root without breaks instead of rejection of a unit root per se in the mentioned situation. Nunes et al (1997) and Lee and Strazicich (2001) provided evidence that by assuming no break under the null in endogenous break tests, the test statistic diverges in order to reject the unit root null significantly when the Data-Generating Process (DGP) is a unit root with break (s). As a solution to the mentioned matter as the above, (Lee and Strazicich, 2003) proposed a twobreak minimum Lagrange Multiplier (LM) unit root test in which the alternative hypothesis unambiguously implies trend stationarity.…”

Section: Ajasmentioning

confidence: 99%

Analysis of Financial Markets Integration of Iran Within the Middle East and With the Rest of the World

Ezzati¹

2013

American Journal of Applied Sciences

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It is universally argued that Iran's financial markets are effectively isolated from the rest of the world. However, in the last three years, privatization increased in Iranian financial markets as well as capitalization, Foreign Direct Investment (FDI) and equity prices, albeit with suspicion of reaching the bubble level. Questions are raised whether Iran is still isolated from the rest of the world. To see whether argument in relation to isolation of Iranian financial markets is true and to better understand Iran's financial development, we estimate financial interdependencies of Iran within the Middle East and with the rest of the world based on the important recycling of petrodollars. For this analysis monthly financial data from equity, money and foreign exchange markets are applied over 12 years. Integration of each of these markets are analysed in turn for Iran within the region and with the rest of the world. Auto-Regressive Distributed Lag (ARDL) cointegration method is conducted to analyse the interdependencies among the financial markets after the application of unit root test in presence of structural breaks. We found that Iran has fairly independent and isolated foreign exchange market. However, its equity and money markets are integrated within the Middle East and with the rest of the world. Iran is neither completely segregated nor fully integrated with the rest of the world; it is still controversial whether Iran should be considered as a good choice for international portfolio diversification based on its segregated nature.

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“…However, the situation is different in the OLS endogenous unit root tests as they will critically depend on the break coefficient. In contrast to the exogenous test of Perron (1989), the OLS endogenous unit root tests assume no break under the null and tend to diverge as the magnitude of a break increases (Nunes et al, 1997 andStrazicich, 2001). Perron (2006) notes that these endogenous break unit root tests are invalid when the break coefficient is a nuisance parameter; see also Byrne and Perman (2007).…”

Section: Notesmentioning

confidence: 99%

IV threshold cointegration tests and the Taylor rule

Enders

Lee

et al. 2010

Economic Modelling

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The usual cointegration tests often entail nuisance parameters that hinder precise inference. This problem is even more pronounced in a nonlinear threshold framework when stationary covariates are included. In this paper, we propose new threshold cointegration tests based on instrumental variables estimation. The newly suggested IV threshold cointegration tests have standard distributions that do not depend on any stationary covariates. These desirable properties allow us to formally test for threshold cointegration in a nonlinear Taylor rule. We perform this analysis using real-time U.S. data for several sample periods from 1970 to 2005. In contrast to the linear model, we find strong evidence of cointegration in a nonlinear Taylor rule with threshold effects. Overall, we find that the Federal Reserve is far more policy active when inflation is high than when inflation is low. In addition, we reaffirm the notion that the response to counteract high inflation was weakest in the 1970s and strongest in the Greenspan era.

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Testing for Unit Roots with Breaks: Evidence on the Great Crash and the Unit Root Hypothesis Reconsidered

Cited by 172 publications

References 10 publications

Underlying Trends and International Price Transmission of Agricultural Commodities

Underlying Trends and International Price Transmission of Agricultural Commodities

Analysis of Financial Markets Integration of Iran Within the Middle East and With the Rest of the World

IV threshold cointegration tests and the Taylor rule

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