Unit root test in a threshold autoregression: asymptotic theory and residual-based block bootstrap

Seo, Myung Hwan (2005) Unit root test in a threshold autoregression: asymptotic theory and residual-based block bootstrap. EM (484). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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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.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk
Additional Information:	© 2005 Myung Hwan Seo
Divisions:	Economics STICERD
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C12 - Hypothesis Testing C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C15 - Statistical Simulation Methods; Monte Carlo Methods; Bootstrap Methods C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models
Date Deposited:	09 Jul 2008 13:51
Last Modified:	15 Sep 2023 23:03
URI:	http://eprints.lse.ac.uk/id/eprint/6836

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