Testing for a Unit Root with Near-Integrated Volatility

H. Peter Boswijk ()

No 01-077/4, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This paper considers tests for a unit root when the innovations follow a near- integrated GARCH process. We compare the asymptotic properties of the likelihood ratio statistic with that of the least-squares based Dickey-Fuller statistic. We first use asymptotics where the GARCH variance process is stationary with fixed parameters, and then consider parameter sequences such that the GARCH process converges to a diffusion process. In both cases, we find a substantial asymptotic local power gain of the likelihood ratio test for parameter values that imply heavy tails in the unconditional innovation distribution. An empirical application to the term structure of interest rates in the Netherlands illustrates the proposed procedures.

New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2001-08-23
View list of references View citations in EconPapers

Downloads: (external link)
http://www.tinbergen.nl/discussionpapers/01077.pdf (application/pdf)

Related works:
Working Paper: Testing for a Unit Root with Near-Integrated Volatility (2000)
Working Paper: Testing for a Unit Root with Near-Integrated Volatility (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:dgr:uvatin:20010077

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute
Series data maintained by Walther Schoonenberg ().