Testing for nonlinear cointegration under heteroskedasticity
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Date
2020
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Abstract
This article discusses cointegration tests for nonlinear cointegration in the presence of variance
breaks in the errors. We build on approaches of Cavaliere and Taylor (2006, Journal of
Time Series Analysis) for heteroskedastic cointegration tests and of Choi and Saikkonen (2010,
Econometric Theory) for nonlinear cointegration tests. We propose a bootstrap test and prove
its consistency.
A Monte Carlo study shows the approach to have appealing finite sample properties and
to work better than an approach using subresiduals. We provide an empirical application to
the environmental Kuznets curves (EKC), finding that the cointegration tests do not reject the
EKC hypothesis in most cases.
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Keywords
nonlinear cointegration tests, fixed regressor bootstrap, variance breaks