A BOOTSTRAP APPROACH TO TESTING FOR SYMMETRY IN THE GRANGER AND LEE ASYMMETRIC ERROR CORRECTION MODEL

Abstract

The power of the Granger and Lee (1989) model of asymmetry is examined via bootstrap simulation. The results of the bootstrap simulation indicate that the Granger and Lee model has low power in rejecting the null hypothesis of symmetric adjustments. The power of the test depends on the bootstrap sample size, difference in adjustment speeds and the amount of noise in the data generating process used in the application. With a small bootstrap sample and large noise level the Granger and Lee model display low power in rejecting the null hypothesis of symmetry.

Keywords

• Bootstrap Methods
• Asymmetric Adjustments
• Power test
• Granger and Lee Model