Simulation analysis of threshold autoregressive unit root tests (Q1952675)

Summary: Using numerical simulation, the finite-sample properties of threshold autoregressive (TAR) and momentum-threshold (MTAR) autoregressive-based unit root tests under both deterministic and consistent methods of threshold estimation are examined in the presence of generalised autoregressive conditional heteroskedasticity (GARCH). Previous research is extended by considering both the impact of alternative robust methods of covariance matrix estimation and the behaviour of the secondary tests of asymmetry associated with the TAR and MTAR models. The results obtained reveal many interesting features, in particular the distortionary effects of consistent-threshold estimation. In summary, the findings presented indicate that caution should be exercised when interpreting the results of these frequently employed threshold-based testing methods.