Semiparametric Tests for Double Unit Roots

Niels Haldrup ()

Journal of Business & Economic Statistics, 1994, vol. 12, issue 1, 109-22

Abstract: In this article, I argue that if an explosive root is considered a serious alternative to an I(2) process, then joint testing for the number of unit roots along the lines of Hasza and Fuller is preferable instead of prior differencing as suggested by Dickey and Pantula. A semiparametric equivalent of the Hasza-Fuller test that permits rather general assumptions about the innovation process is developed. The test is a straightforward generalization of the Phillips Z test for a single unit root. Through Monte Carlo simulations, the different tests are compared, and the article is completed by an empirical application examining the purchasing power parity for several Latin American countries for which both explosive and double unit roots may be a possibility.

Date: 1994
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