Location of Repository

Non-linearities and unit roots in G7 macroeconomic variables

By Yunus Aksoy and M. Leon-Ledesma


We carry out a meta-analysis on the frequency of unit-roots in macroeconomic time series with a dataset covering 249 variables for the G7 countries. We use linear tests and the three popular non-linear tests (TAR, ESTAR and Markov Switching). In general, the evidence in favour of the random walk hypothesis is weaker than in previous studies. This evidence against unit roots is stronger for real and nominal asset prices. Our results show that rejection of the null of a unit root in the macro dataset is substantially higher for non-linear than linear models. Finally, the results from a Monte Carlo experiment show that rejection frequencies are very close to the nominal size of the test when the DGP is a linear unit root process. This leads us to reject the hypothesis that overfitting deterministic components explains the higher rejection frequencies of nonlinear tests

Topics: ems
Publisher: Berkeley Electronic Press
Year: 2008
OAI identifier: oai:eprints.bbk.ac.uk.oai2:666

Suggested articles



  1. (1989). A New Approach to the Economic Analysis of doi
  2. (2001). A Parametric Approach to Flexible Non-linear doi
  3. (2007). A Unified Approach to Linearity, Outliers and Structural Breaks, doi
  4. (1998). Additional Tests for a Unit Root Allowing for a Break in the Trend Function at an Unknown Time, doi
  5. (2004). An investigation of current account solvency in Latin America using non-linear nonstationarity tests, doi
  6. (1984). Are Economic Time Series Asymmetric over the Business Cycle?, doi
  7. (2003). Asymptotics for Unit Root Tests under Markov Regimeswitching, doi
  8. (2004). Combination Forecasts Of Output Growth In A Seven-Country Data Set, doi
  9. (1993). Consistency and limiting distribution of the least squares estimator of a threshold autoregressive model, doi
  10. (1999). Detecting Periodically Collapsing Bubbles: A Markov-Switching Unit Root Test, doi
  11. (2007). Does the Real Interest Rate Parity Hypothesis Hold? Evidence for Developed and Emerging Markets, doi
  12. (1996). Efficient Tests for an Autoregressive Unit doi
  13. (1996). Evidence on Structural Instability in Macroeconomic Time Series Relations, doi
  14. (1986). Hysteresis and the European unemployment problem, doi
  15. (2004). Is there a unit root in inflation? doi
  16. (2008). Leon-Ledesma: Non-Linearities and Unit Roots Published by The Berkeley Electronic Press, doi
  17. (2004). Linearity tests and stationarity, doi
  18. (2001). Markov Level Shifts and the Unit-Root Hypothesis", doi
  19. (2001). Markov Regime Switching and Unit Root Tests, doi
  20. (1993). Modelling Nonlinear Economic Relationships, doi
  21. Non-linear mean-reversion in real exchange rates: toward a resolution of the PPP puzzles, doi
  22. (2002). On the Asymptotic Behaviour of Unit-Root Tests in the Presence of a Markov Trend", doi
  23. (1994). Optimal Tests When a Nuisance Parameter Is Present Only under the doi
  24. (2002). Smooth Transition Autoregressive Models – A Survey of Recent Developments, doi
  25. (1974). Spurious Regressions in Econometrics, doi
  26. (2003). Testing for a Unit Root in the Nonlinear STAR framework, doi
  27. (1990). The Great Crash, the Oil price Shock and the Unit Root Hypothesis, doi
  28. (2004). The term structure of Japanese interest rates: the equilibrium spread with asymmetric dynamics,
  29. (2004). The Yen real exchange rate may be stationary after all: evidence from non-linear unit-roots tests, doi
  30. (2001). Threshold Autoregression with a Unit Root, doi
  31. (1997). Threshold cointegration, doi
  32. (2004). Threshold effects in the US budget deficit, doi
  33. (2003). Time-Varying Smooth Transition Autoregressive Models, doi
  34. (1997). Transaction costs and non-linear adjustment in the real exchange rate: an empirical investigation, doi
  35. (1982). Trends and Random Walks in Macroeconomic Time Series, doi
  36. (2004). Unemployment, hysteresis and transition, doi
  37. (2004). Unit Roots and Infrequent Large Shocks: doi
  38. (2002). Unit Roots, Trend Breaks, and Transitory Dynamics: A Macroeconomic Perspective, doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.