Threshold unit root tests with smooth transitions

Since threshold autoregressive models were discovered, many unit root tests have been developed to test the unit root null hypothesis when considering regime change. On the other hand, Sollis, J Time Ser Anal 25:409–417, 2004, indicates that a threshold unit root test could be combined with some smooth transition logistic functions which are introduced by Leybourne et al., J Time Ser Anal 19:83–97, 1998. This paper investigates whether the Caner and Hansen, Econometrica 69:1555–1596, 2001, unit root test could be expanded with smooth transition functions and demonstrates the performance of this new unit root testing process with Monte Carlo simulations. Simulation results for finite sample properties show reasonable empirical size and power values. Also, the proposed unit root testing procedure is used to test unit root null hypothesis for industrial production indices of United States of America and Turkey.