THE IMPOSSIBILITY OF CONSISTENT DISCRIMINATION BETWEEN I(0) AND I(1) PROCESSES

M?ller, Ulrich K.

Econometric Theory, 2008, vol. 24, issue 03, pages 616-630

Abstract: An I(0) process is commonly defined as a process that satisfies a functional central limit theorem, i.e., whose scaled partial sums converge weakly to a Wiener process, and an I(1) process as a process whose first differences are I(0). This paper establishes that with this definition, it is impossible to consistently discriminate between I(0) and I(1) processes. At the same time, on a more constructive note, there exist consistent unit root tests and also nontrivial inconsistent stationarity tests with correct asymptotic size.

Date: 2008

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