TESTING LINEARITY AND MODELING NONLINEAR TIME-SERIES

This paper discusses some of the recent developments in testing linear ity of a time series against the alternative that the series has been generated by a nonlinear process. The focus is on testing linearity ag ainst parametric alternatives. Special attention is given to the situa tions in which the parametric nonlinear model only is identified under the alternative but not under the null hypothesis of linearity. The u se of some of the linearity tests in the modelling of nonlinear series is considered and illustrated with an example.