Smooth Break Detection and De-Trending in Unit Root Testing
This study explores the methods to de-trend the smooth structural break processes while conducting the unit root tests. The two most commonly applied approaches for modelling smooth structural breaks namely the smooth transition and the Fourier functions are considered. We perform a sequence of powe...
| Main Authors: | , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2021-02-01
|
| Series: | Mathematics |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-7390/9/4/371 |
| _version_ | 1797396744217034752 |
|---|---|
| author | Furkan Emirmahmutoglu Tolga Omay Syed Jawad Hussain Shahzad Safwan Mohd Nor |
| author_facet | Furkan Emirmahmutoglu Tolga Omay Syed Jawad Hussain Shahzad Safwan Mohd Nor |
| author_sort | Furkan Emirmahmutoglu |
| collection | DOAJ |
| description | This study explores the methods to de-trend the smooth structural break processes while conducting the unit root tests. The two most commonly applied approaches for modelling smooth structural breaks namely the smooth transition and the Fourier functions are considered. We perform a sequence of power comparisons among alternative unit root tests that accommodate smooth or sharp structural breaks. The power experiments demonstrate that the unit root tests utilizing the Fourier function lead to unexpected results. Furthermore, through simulation studies, we investigate the source of such unexpected outcomes. Moreover, we provide the asymptotic distribution of two recently proposed unit root tests, namely Fourier-Augmented Dickey–Fuller (FADF) and Fourier-Kapetanios, Shin and Shell (FKSS), which are not given in the original studies. Lastly, we find that the selection of de-trending function is pivotal for unit root testing with structural breaks. |
| first_indexed | 2024-03-09T00:56:02Z |
| format | Article |
| id | doaj.art-d12ffe892129419e94c6f8931492a205 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T00:56:02Z |
| publishDate | 2021-02-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-d12ffe892129419e94c6f8931492a2052023-12-11T16:56:52ZengMDPI AGMathematics2227-73902021-02-019437110.3390/math9040371Smooth Break Detection and De-Trending in Unit Root TestingFurkan Emirmahmutoglu0Tolga Omay1Syed Jawad Hussain Shahzad2Safwan Mohd Nor3Department of Econometrics, Ankara Haci Bayram Veli University, 06500 Ankara, TurkeyDepartment of Economics, Atilim University, 06830 Ankara, TurkeyMontpellier Business School, University of Montpellier, Montpellier Research in Management, 34080 Montpellier, FranceFaculty of Business, Economics and Social Development, University of Malaysia Terengganu, 21030 Kuala Nerus, Terengganu, MalaysiaThis study explores the methods to de-trend the smooth structural break processes while conducting the unit root tests. The two most commonly applied approaches for modelling smooth structural breaks namely the smooth transition and the Fourier functions are considered. We perform a sequence of power comparisons among alternative unit root tests that accommodate smooth or sharp structural breaks. The power experiments demonstrate that the unit root tests utilizing the Fourier function lead to unexpected results. Furthermore, through simulation studies, we investigate the source of such unexpected outcomes. Moreover, we provide the asymptotic distribution of two recently proposed unit root tests, namely Fourier-Augmented Dickey–Fuller (FADF) and Fourier-Kapetanios, Shin and Shell (FKSS), which are not given in the original studies. Lastly, we find that the selection of de-trending function is pivotal for unit root testing with structural breaks.https://www.mdpi.com/2227-7390/9/4/371structural breaknonlinear unit root testsflexible Fourier formsmooth transition regression |
| spellingShingle | Furkan Emirmahmutoglu Tolga Omay Syed Jawad Hussain Shahzad Safwan Mohd Nor Smooth Break Detection and De-Trending in Unit Root Testing Mathematics structural break nonlinear unit root tests flexible Fourier form smooth transition regression |
| title | Smooth Break Detection and De-Trending in Unit Root Testing |
| title_full | Smooth Break Detection and De-Trending in Unit Root Testing |
| title_fullStr | Smooth Break Detection and De-Trending in Unit Root Testing |
| title_full_unstemmed | Smooth Break Detection and De-Trending in Unit Root Testing |
| title_short | Smooth Break Detection and De-Trending in Unit Root Testing |
| title_sort | smooth break detection and de trending in unit root testing |
| topic | structural break nonlinear unit root tests flexible Fourier form smooth transition regression |
| url | https://www.mdpi.com/2227-7390/9/4/371 |
| work_keys_str_mv | AT furkanemirmahmutoglu smoothbreakdetectionanddetrendinginunitroottesting AT tolgaomay smoothbreakdetectionanddetrendinginunitroottesting AT syedjawadhussainshahzad smoothbreakdetectionanddetrendinginunitroottesting AT safwanmohdnor smoothbreakdetectionanddetrendinginunitroottesting |