A Unit Root Test Using a Fourier Series to Approximate Smooth Breaks

We develop a unit‐root test based on a simple variant of Gallant's (1981) flexible Fourier form. The test relies on the fact that a series with several smooth structural breaks can often be approximated using the low frequency components of a Fourier expansion. Hence, it is possible to test for...

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Bibliographic Details
Published inOxford bulletin of economics and statistics Vol. 74; no. 4; pp. 574 - 599
Main Authors Enders, Walter, Lee, Junsoo
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.08.2012
Subjects
Approximation
C12
C22
E17
Econometrics
Economic analysis
Economic models
Economics
Fourier transforms
Frequency
Interest rates
Spread
Statistical methods
Studies
Time series
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Summary:We develop a unit‐root test based on a simple variant of Gallant's (1981) flexible Fourier form. The test relies on the fact that a series with several smooth structural breaks can often be approximated using the low frequency components of a Fourier expansion. Hence, it is possible to test for a unit root without having to model the precise form of the break. Our unit‐root test employing Fourier approximation has good size and power for the types of breaks often used in economic analysis. The appropriate use of the test is illustrated using several interest rate spreads.
Bibliography:istex:B971D2221071C58FCD3B3C8BC2C2EA2E478EA1CB
ark:/67375/WNG-W7013S9W-R
ArticleID:OBES662
The authors wish to thank Ralf Becker, Mark Wohar, Kyung-so Im, Michael McCracken and Mark Strazicich for their helpful comments.
The authors wish to thank Ralf Becker, Mark Wohar, Kyung‐so Im, Michael McCracken and Mark Strazicich for their helpful comments.
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SourceType-Scholarly Journals-1
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ISSN:0305-9049
1468-0084
DOI:10.1111/j.1468-0084.2011.00662.x