How to compute the BDS test: a software comparison

A note on change in persistence of U.S. city prices

Abstract This paper seeks to explain the high persistence in U.S. price differentials found in Cecchetti, S. G., N. C. Mark, and R. J. Sonora. 2002. “Price Index Convergence Among United States Cities.” International Economic Review 43: 1081–99, by means of the concept of change in persistence. To that end, have computed recently developed tests by Kejriwal, M., P. Perron, and J. Zhou. 2013. “Wald Tests for Detecting Multiple Structural Changes in Persistence.” Econometric Theory 29: 289–323, allowing for multiple changes in persistence under the alternative hypothesis. We conclude that change in persistence cannot be ruled out for some city price differentials.

A Note on Resampling the Integration Across the Correlation Integral with Alternative Ranges

Abstract This paper reconsiders the nonlinearity test proposed by Ko[cbreve]enda (Ko[cbreve]enda, E. (2001). An alternative to the BDS test: integration across the correlation integral. Econometric Reviews20:337–351). When the analyzed series is non‐Gaussian, the empirical rejection rates can be much larger than the nominal size. In this context, the necessity of tabulating the empirical distribution of the statistic each time the test is computed is stressed. To that end, simple random permutation works reasonably well. This paper also shows, through Monte Carlo experiments, that Ko[cbreve]enda's test can be more powerful than the Brock et al. (Brock, W., Dechert, D., Scheickman, J., LeBar…

Assessing nonlinear structures in real exchange rates using recurrence plot strategies

Purchasing power parity (PPP) is an important theory at the basis of a large number of economic models. However, the implication derived from the theory that real exchange rates must follow stationary processes is not conclusively supported by empirical studies. In a recent paper, Serletis and Gogas [Appl. Finance Econ. 10 (2000) 615] show evidence of deterministic chaos in several OECD exchange rates. As a consequence, PPP rejections could be spurious. In this work, we follow a two-stage testing procedure to test for nonlinearities and chaos in real exchange rates, using a new set of techniques designed by Webber and Zbilut [J. Appl. Physiol. 76 (1994) 965], called recurrence quantificatio…

Residual-based block bootstrap for cointegration testing

We propose a new testing procedure to determine the rank of cointegration. This new method is based on the nonparametric resampling procedure, so-called Residual-Based Block Bootstrap (RBB), which is developed by Paparoditis and Politis (2003) in the context of unit root testing. Through Monte Carlo experiments we show that, in small samples, the RBB cointegration test has good power properties in relation to the other two well-known tests for cointegration, such as the Augmented Dickey–Fuller (ADF), applied to the residual of a cointegrating regression, and the Johansen's maximum eigenvalue tests. Likewise, this article looks at the influence played by the correlation of the ‘X’ variables …

Tests for time reversibility: a complementarity analysis

Abstract Since time reversibility (TR) is a necessary condition for an independent and identically distributed (iid) sequence, several tests for TR have been suggested to be applied as tests for model misspecification. In this paper, we analyze possible complementarities among two well known TR tests (Ramsey and Rothman's test, and Chen et al.'s test) in two situations: (1) the fitted model is a linear ARMA model when the true data generating process is a nonlinear-in-mean model (either threshold autoregressive or bilinear), and (2) the fitted model is a symmetric GARCH model but the true process belongs to the asymmetric GARCH family (either EGARCH or GJR). The results suggest that there a…

Exchange rates expectations and chaotic dynamics: a replication study

Abstract In this paper the author analyzes the behavior of exchange rates expectations for four currencies, by considering a re-calculation and an extension of Resende and Zeidan (Expectations and chaotic dynamics: empirical evidence on exchange rates, Economics Letters, 2008). Considering Lyapunov exponent-based tests results, they are not supportive of chaos in exchange rates expectations, although the so-called 0–1 test strongly supports the chaos hypothesis.

A PROOF OF THE POWER OF KIM'S TEST AGAINST STATIONARY PROCESSES WITH STRUCTURAL BREAKS

Recently, Kim (2000)1 and Busetti and Taylor (2004) have proposed different ratio-based procedures to test the hypothesis of stationarity against the alternative of changing persistence.2 This includes the alternative of a process changing from 1(0) to I(1) and vice versa, although Busetti and Taylor (2004) show that Kim's original test (2000) is inconsistent against fixed I(1) I(0) alternatives. In this note we show that, similarly to other stationarity tests (e.g., Kwiatkowski, Phillips, Schmidt, and Shin [KPSS]), Kim's test (2000) rejects the null of stationarity asymptotically with probability one, whenever the true data generating process is a stationary one around a constant term with…

Testing for non-linearity in an artificial financial market: a recurrence quantification approach

Abstract In this paper, earlier work on testing for non-linear dynamics on realizations from an artificial financial market is extended in two ways. On the one hand, Hinich’s bispectral test and White’s neural network test are computed. On the other hand, a recently developed methodology to test for hidden structures in data, inherited from Physics, is successfully applied on the realizations of the artificial market. Results among alternative tests are compared.

Some evidence of random walk behavior of Euro exchange rates using ranks and signs

Abstract This study utilises recently developed tests based on ranks and signs, in addition to the traditional variance ratio test, to examine the behavior of Euro exchange rates. We show that adjustments for multiple tests must be employed in order to avoid size distortions. Overall, such adjustments provide evidence consistent with random walk behavior of Euro exchange rates.

Testing for random walk in euro exchange rates using the subsampling approach

This study utilizes variance ratio tests based on the subsampling approach to test the behaviour of euro-based exchange rates markets. Results are mixed, although the random walk behaviour is dominant among the three major currencies namely the Japanese yen, the US dollar and the British pound.

Recurrence Plots in Nonlinear Time Series Analysis: Free Software

Recurrence plots are graphical devices specially suited to detect hidden dynamical patterns and nonlinearities in data. However, there are few programs available to apply such a mehodology. This paper reviews one of the best free programs to apply nonlinear time series analysis: Visual Recurrence Analysis (VRA). This program is targeted to recurrence analysis and the so-called Recurrence Quantitative Analysis (RQA, the quantitative counterpart of recurrence plots), although it includes many procedures in a friendly visual environment. Comparisons with alternative programs are performed.

Unemployment, cycle and gender

Abstract This study analyzes the relationship between unemployment and the business cycle in the UK and the US. For both economies, a strong and definite association is found that shows that cyclical shocks extend their effect on unemployment over several quarters. This association is much more intense for male unemployment than for female unemployment, although some strength has been lost in the UK in the last few years.

Testing the Martingale Property of Exchange Rates: A Replication

In this paper, we test the martingale property of a set of U.S. exchange rates already analyzed in a recent paper by Yilmaz [J. of Buss. and Ec. Stat., 2003]. We claim that the tests used by Yilmaz are not the most convenient to test the martingale hypothesis (or the equivalent martingale difference of the returns); hence, we compute a recently proposed test by Kuan and Lee [Stud. in Nonlin. Dyn. and Econ., 2004] and compare our results to Yilmaz's. Striking differences arise, which can give a clue about the type of data generating process governing the evolution of exchange rates in each sub-period.