Unit root tests under time-varyng variances

Cavaliere, Giuseppe (2003) Unit root tests under time-varyng variances. Bologna, IT: Dipartimento di Scienze Statistiche "Paolo Fortunati", Alma Mater Studiorum Università di Bologna, p. 37. DOI 10.6092/unibo/amsacta/2421. In: Quaderni di Dipartimento. Serie Ricerche ISSN 1973-9346.
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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 under permanent variance shifts, the conventional critical values can lead both to oversized and undersized tests. The paper concludes by showing that the power function of the unit root tests is affected by non-constant variances as well.

Document type
Monograph (Working Paper)
Cavaliere, Giuseppe
Deposit date
21 Feb 2008
Last modified
16 May 2011 12:07

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