Testing for a Unit Root with Near-Integrated Volatility

H. Peter Boswijk ()

No 1101, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

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 the fixed-parameter case, the asymptotic local power gain of the likelihood ratio test is only marginal for realistic parameter values. However, under near-integrated parameter sequences the difference in power is more pronounced.

Date: 2000-08-01
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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 (2001)
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