ASYMPTOTIC INFERENCE FOR UNIT ROOT PROCESSES WITH GARCH(1,1) ERRORS

Shiqing Ling and W.K. Li

Econometric Theory, 2003, vol. 19, issue 04, pages 541-564

Abstract: This paper investigates the so-called one-step local quasi maximum likelihood estimator for the unit root process with GARCH(1,1) errors. When the scaled conditional errors (the ratio of the disturbance to the conditional standard deviation) follow a symmetric distribution, the asymptotic distribution of the estimated unit root is derived only under the second-order moment condition. It is shown that this distribution is a functional of a bivariate Brownian motion as in Ling and Li (1998, Annals of Statistics 26, 84 125) and can be used to construct the unit root test.The authors thank the co-editor, Bruce Hansen, and two referees for very helpful comments and suggestions. W.K. Li s research is partially supported by the Hong Kong Research Grants Council. Ling s research is supported by RGC Competitive Earmarked Research grant HKUST6113 02P.

Date: 2003
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