Table of Contents
ISRN Probability and Statistics
Volume 2012, Article ID 649134, 12 pages
http://dx.doi.org/10.5402/2012/649134
Research Article

Simulation Analysis of Threshold Autoregressive Unit Root Tests

Department of Economics, Swansea University, Singleton Park, Swansea SA2 8PP, UK

Received 9 March 2012; Accepted 24 April 2012

Academic Editors: D. Fiems, J. Perelló, and M. Scotto

Copyright © 2012 Steve Cook. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Using numerical simulation, the finite-sample properties of threshold autoregressive (TAR) and momentum-threshold (MTAR) autoregressive-based unit root tests under both deterministic and consistent methods of threshold estimation are examined in the presence of generalised autoregressive conditional heteroskedasticity (GARCH). Previous research is extended by considering both the impact of alternative robust methods of covariance matrix estimation and the behaviour of the secondary tests of asymmetry associated with the TAR and MTAR models. The results obtained reveal many interesting features, in particular the distortionary effects of consistent-threshold estimation. In summary, the findings presented indicate that caution should be exercised when interpreting the results of these frequently employed threshold-based testing methods.