Asymptotic behaviour of tests for a unit root against an explosive alternative

Harvey, David I. and Leybourne, Stephen J. (2014) Asymptotic behaviour of tests for a unit root against an explosive alternative. Economics Letters, 122 (1). pp. 64-68. ISSN 0165-1765

[img]
Preview
PDF - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Available under Licence Creative Commons Attribution Non-commercial No Derivatives.
Download (327kB) | Preview

Abstract

We compare the asymptotic local power of upper-tail unit root tests against an explosive alternative based on ordinary least squares (OLS) and quasi-differenced (QD) demeaning/detrending. We find that under an asymptotically negligible initialisation, the QD-based tests are near asymptotically efficient and generally offer superior power to OLS-based approaches; however, the power gains are much more modest than in the lower-tail testing context. We also find that asymptotically non-negligible initial conditions do not affect the power ranking in the same way as they do for lower-tail tests, with the QD-based tests retaining a power advantage in such cases.

Item Type: Article
Keywords: Unit root testing; Explosive autoregression; Asymptotic power; Initial condition
Schools/Departments: University of Nottingham UK Campus > Faculty of Social Sciences > School of Economics
Identification Number: https://doi.org/10.1016/j.econlet.2013.11.006
Depositing User: Eprints, Support
Date Deposited: 06 Apr 2016 10:36
Last Modified: 13 Sep 2016 15:24
URI: http://eprints.nottingham.ac.uk/id/eprint/32668

Actions (Archive Staff Only)

Edit View Edit View