Abstract
This paper proposes a new procedure to test for a unit root in a nonlinear framework, with three separate contributions. First, the study proposes a modification of the ESTAR model to account for cases where the adjustment mechanism towards equilibrium is not symmetric. Second, we develop a testing procedure to detect the presence of a nonlinear stationary process by establishing the limiting non-standard asymptotic distributions of proposed test-statistics. Finally, we perform Monte Carlo simulations to access small sample performance and highlight the power gain of the proposed test over existing tests for a unit root.
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