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

Harvey, David I.; Leybourne, Stephen J.

Authors

David I. Harvey

Stephen J. Leybourne



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.

Journal Article Type Article
Publication Date Jan 1, 2014
Journal Economics Letters
Print ISSN 0165-1765
Electronic ISSN 0165-1765
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 122
Issue 1
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
DOI https://doi.org/10.1016/j.econlet.2013.11.006
Keywords Unit root testing; Explosive autoregression; Asymptotic power; Initial condition
Publisher URL http://www.sciencedirect.com/science/article/pii/S016517651300493X
Copyright Statement 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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Copyright Statement
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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