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A New Test for Nonstationarity Against the Stable Alternative

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  • Abadir, Karim M.

Abstract

It was recently shown (Abadir, 1993b) that nonstationarity causes the limiting distributions of the Wald (W) and Lagrange multiplier (LM) statistics to become different from each other. This paper demonstrates that such a divergence between the two distributions can be used as an indicator of the presence of a unit root. A test based on this idea is devised by modifying the normalized autocorrelation coefficient (NAC). It is then shown to be an improvement on NAC in large samples and an improvement on other existing tests in large effective samples. The paper also investigates the effect of nonstationarity on the well-known inequality W ≥ LR ≥ LM.

Suggested Citation

  • Abadir, Karim M., 1995. "A New Test for Nonstationarity Against the Stable Alternative," Econometric Theory, Cambridge University Press, vol. 11(1), pages 81-104, February.
    • Handle: RePEc:cup:etheor:v:11:y:1995:i:01:p:81-104_00
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    Cited by:

    1. Abadir, Karim M., 1995. "Unbiased estimation as a solution to testing for random walks," Economics Letters, Elsevier, vol. 47(3-4), pages 263-268, March.
    2. Horowitz, Joel L. & Savin, N. E., 2000. "Empirically relevant critical values for hypothesis tests: A bootstrap approach," Journal of Econometrics, Elsevier, vol. 95(2), pages 375-389, April.

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