Abstract :
This paper develops a test of the unit root null hypothesis against a stationary
threshold process+ This testing problem is nonstandard and complicated because
a parameter is unidentified and the process is nonstationary under the null hypothesis+
We derive an asymptotic distribution for the test, which is not pivotal without
simplifying assumptions+ A residual-based block bootstrap is proposed to
calculate the asymptotic p-values+ The asymptotic validity of the bootstrap is
established, and a set of Monte Carlo simulations demonstrates its finite-sample
performance+ In particular, the test exhibits considerable power gains over the
augmented Dickey–Fuller ~ADF! test, which neglects threshold effects+
