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On the performance of the variance ratio unit root tests with flexible Fourier form

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  • Burak A. Erog̃lu
  • Selim Yıldırım

Abstract

This article introduces a new unit root test that combines the variance ratio framework with the Flexible Fourier Form under the generalized least squares detrending mechanism. The advantage of the proposed method against its alternatives can be listed as: (1) it suggests a non-parametric procedure that does not require any parametric or semi-parametric model to remove serial correlation in the innovation process; (2) it can reasonably adapt itself to deal with the multiple structural breaks with various functional specifications. In the simulation exercises, we show that the proposed method exhibits satisfactory performance in the size and size-adjusted power analysis.

Suggested Citation

  • Burak A. Erog̃lu & Selim Yıldırım, 2021. "On the performance of the variance ratio unit root tests with flexible Fourier form," Journal of Applied Statistics, Taylor & Francis Journals, vol. 48(13-15), pages 2560-2579, November.
    • Handle: RePEc:taf:japsta:v:48:y:2021:i:13-15:p:2560-2579
    DOI: 10.1080/02664763.2020.1796939
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