Specification sensitivities in the Markov-switching unit root test for bubbles

Shu Ping Shi*

*Corresponding author for this work

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

The aim of this article is to provide some empirical guidelines for the practical implementation of the Markov-switching augmented Dickey-Fuller (MSADF) test proposed by Hall et al. (J Appl Econom 14:143-154, 1999) for detecting explosive bubble behavior. We conduct simulation studies to compare the performance of the MSADF test under different error variance specifications, namely the constant variance and regime-dependent variance assumptions. An empirical application to the money base, consumer price and exchange rate in Argentina reveals the practical importance of the error variance specification on the MSADF test outcomes.

Original languageEnglish
Pages (from-to)697-713
Number of pages17
JournalEmpirical Economics
Volume45
Issue number2
DOIs
Publication statusPublished - Oct 2013
Externally publishedYes

Keywords

  • Error variance
  • Independent Markov-switching bubble process
  • Markov-switching unit root test
  • Rational bubble

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