Power of unit root tests against nonlinear and noncausal alternatives

Frédérique Bec, Alain Guay, Heino Bohn Nielsen and Sarra Saïdi ()
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Sarra Saïdi: Université de Cergy-Pontoise, THEMA

No 2022-14, THEMA Working Papers from THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise

Abstract: The increasing sophistication of economic and financial time series modelling creates a need for a test of the time dependence structure of the series which does not require a proper specification of the alternative. Indeed, the latter is unknown beforehand. Yet, the stationarity has to be established before proceeding to the estimation and testing of causal/noncausal or linear/nonlinear models as their econometric theory has been developed under the maintained assumption of stationarity. In this paper, we propose a new unit root test statistics which is both asymptotically consistent against all stationary alternatives and still keeps good power properties in finite sample. A large simulation study is performed to assess the power of our test compared to existing unit root tests built specifically for various kinds of stationary alternatives, when the true DGP is either causal or noncausal, linear or nonlinear stationary. Based on various sample sizes and degrees of persistence, it turns out that our new test performs very well in terms of power in finite sample, no matter the alternative under consideration.

Keywords: Unit root test; Threshold autoregressive model; Noncausal model. (search for similar items in EconPapers)
JEL-codes: C12 C22 C32 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ema:worpap:2022-14

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