A new unit root test against ESTAR based on a class of modified statistics

This paper proposes a new unit root test against a nonlinear exponential smooth transition autoregressive model. This model receives much attention in international macroeconomics as it has been successfully applied to a variety of financial time series. The new test is build upon the nonstandard testing approach of Abadir and Distaso (J Econom 140:695–718, 2007) who introduce a class of modified statistics for testing joint hypotheses when one of the alternatives is one-sided. The asymptotic properties of the suggested unit root test are derived. In a Monte Carlo study the popular Dickey–Fuller-type test proposed by Kapetanios et al. (J Econom 112:359–379, 2003) is compared to the new test. The results suggest that the new test is generally superior in terms of power. An application to a real effective exchange rate underlines its usefulness.