Robust tests against smooth transition autoregressive models

Beg, A.B.M. Rabiul Alam, Silvapulle, Mervyn Joseph, and Silvapulle, Paramsothy (2002) Robust tests against smooth transition autoregressive models. Journal of statistical computation and simulation, 72 (2). pp. 167-178.

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In this paper, we consider testing for linearity against a well-known class of regime switching models known as the smooth transition autoregressive (STAR) models. Apart from the model selection issues, one reason for interest in testing for linearity in time-series models is that non-linear models such as the STAR are considerably more difficult to use. This testing problem is non-standard because a nuisance parameter becomes unidentified under the null hypothesis. In this paper, we further explore the class of tests proposed by Luukkonen, Saikonnen and Terasvirta (1988). Luukkonen et al. (1988) proposed LM tests for linearity against STAR models. A potential difficulty here is that the linear approximation introduces high leverage points, and hence outliers are likely to be quite influential. To overcome this difficulty, we use the same approximating linear model of Luukkonen et al. (1988), but we apply Wald and F-tests based on l1- and bounded influence estimates. The efficiency gains of this procedure cannot be easily deduced from the existing theoretical results because the test is based on a misspecified model under H1. Therefore, we carried out a simulation study, in which we observed that the robust tests have desirable properties compared to the test of Luukkonen et al. (1988) for a range of error distributions in the STAR model, in particular the robust tests have power advantages over the LM test.

Item ID: 792
Item Type: Article (Research - C1)
ISSN: 1026-7778
Keywords: bounded influence, high breakdown, generalized M-estimate, l1-estimate, nonlinearity, robust test, test for linearity, threshold autoregression
Date Deposited: 24 Oct 2006
FoR Codes: 14 ECONOMICS > 1499 Other Economics > 149999 Economics not elsewhere classified @ 100%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9199 Other Economic Framework > 919999 Economic Framework not elsewhere classified @ 100%
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