David I. Harvey
Asymptotic behaviour of tests for a unit root against an explosive alternative
Harvey, David I.; Leybourne, Stephen J.
Stephen J. Leybourne
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.
|Journal Article Type||Article|
|Publication Date||Jan 1, 2014|
|Peer Reviewed||Peer Reviewed|
|APA6 Citation||Harvey, D. I., & Leybourne, S. J. (2014). Asymptotic behaviour of tests for a unit root against an explosive alternative. Economics Letters, 122(1), doi:10.1016/j.econlet.2013.11.006|
|Keywords||Unit root testing; Explosive autoregression; Asymptotic power; Initial condition|
|Copyright Statement||Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0|
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by-nc-nd/4.0
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