Testing for strict stationarity in a random coefficient autoregressive model

Lorenzo Trapani

Discussion Papers from University of Nottingham, Granger Centre for Time Series Econometrics

Abstract: We propose a procedure to decide between the null hypothesis of (strict) stationarity and the alternative of non-stationarity, in the context of a Random Coefficient AutoRegression (RCAR). The procedure is based on randomising a diagnostic which diverges to positive infinity under the null, and drifts to zero under the alternative. Thence, we propose a randomised test which can be used directly and - building on it - a decision rule to discern between the null and the alternative. The procedure can be applied under very general circumstances: albeit developed for an RCAR model, it can be used in the case of a standard AR(1) model, without requiring any modifications or prior knowledge. Also, the test works (again with no modification or prior knowledge being required) in the presence of infinite variance, and in general requires minimal assumptions on the existence of moments.

Keywords: Random Coefficient AutoRegression; Stationarity; Unit Root; Heavy Tails; Randomised Tests. (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-ecm and nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgts:18/02

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