A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks

29 Pages Posted: 8 May 2006

See all articles by Ralf Becker

Ralf Becker

University of Manchester

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies

Abstract

Macroeconomic variables have been shown to display a wide variety of structural breaks of unknown number, duration and form. This poses a challenge since improperly modelled breaks can result in a seriously misspecified model. In this paper, we develop a new test for stationarity that approximates the unknown form of structural breaks using a selected frequency component from a Fourier approximation. Our proposed test performs quite well when breaks are gradual, and shows reasonable power. The appropriate use of the test is illustrated by examining real exchange rates in the post-Bretton Woods period.

Suggested Citation

Becker, Ralf and Enders, Walter and Lee, Junsoo, A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks. Journal of Time Series Analysis, Vol. 27, No. 3, pp. 381-409, May 2006, Available at SSRN: https://ssrn.com/abstract=895407 or http://dx.doi.org/10.1111/j.1467-9892.2006.00478.x

Ralf Becker (Contact Author)

University of Manchester ( email )

School of Social Sciences
Manchester M13 9PL
United Kingdom

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
200 Alston Hall
Tuscaloosa, AL 35487
United States
205-348-8972 (Phone)
205-348-0590 (Fax)

Junsoo Lee

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL Alabama 35487
United States
2053488978 (Phone)

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