Inconsistency of a Unit Root Test against Stochastic Unit Root Processes
AbstractIn this paper, we develop the asymptotic theory of Hwang and Basawa (2005) for explosive random coefficient autoregressive (ERCA) models. Applying the theory, we prove that a locally best invariant (LBI) test in McCabe and Tremayne (1995), which is for the null of a unit root (UR) process against the alternative of a stochastic unit root (STUR) process, is inconsistent against a class of ERCA models. This class includes a class of STUR processes as special cases. We show, however, that the well-known Dickey-Fuller (DF) UR tests and an LBI test of Lee (1998) are consistent against a particular case of this class of ERCA models.
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Bibliographic InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 09-E-23.
Date of creation: Oct 2009
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Locally Best Invariant Test; Consistency; Dickey-Fuller Test; LBI; RCA; STUR;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-ECM-2009-12-11 (Econometrics)
- NEP-ETS-2009-12-11 (Econometric Time Series)
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