Unit Root Tests under Time-Varying Variances
The paper provides a general framework for investigating the effects of permanent changes in the variance of the errors of an autoregressive process on unit root tests. Such a framework - which is based on a novel asymptotic theory for integrated and near integrated processes with heteroskedastic errors - allows to evaluate how the variance dynamics affect the size and the power function of unit root tests. Contrary to previous studies, it is shown that non-constant variances can both inflate and deflate the rejection frequency of the commonly used unit root tests, both under the null and under the alternative, with early negative and late positive variance changes having the strongest impact on size and power. It is also shown that shifts smoothed across the sample have smaller impacts than shifts occurring as a single abrupt jump, while periodic variances have a negligible effect even when a small number of cycles take place over a given sample. Finally, it is proved that the locally best invariant (LBI) test of a unit root against level stationarity is robust to heteroskedasticity of any form under the null hypothesis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 23 (2005)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/LECR20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/LECR20|
When requesting a correction, please mention this item's handle: RePEc:taf:emetrv:v:23:y:2005:i:3:p:259-292. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.