Asymptotic behaviour of tests for a unit root against an explosive alternative

David Harvey and Stephen Leybourne ()

Economics Letters, 2014, vol. 122, issue 1, 64-68

Abstract: We compare the asymptotic local power of upper-tail unit root tests against an explosive alternative based on ordinary least squares (OLS) and quasi-differenced (QD) demeaning/detrending. We find that under an asymptotically negligible initialisation, the QD-based tests are near asymptotically efficient and generally offer superior power to OLS-based approaches; however, the power gains are much more modest than in the lower-tail testing context. We also find that asymptotically non-negligible initial conditions do not affect the power ranking in the same way as they do for lower-tail tests, with the QD-based tests retaining a power advantage in such cases.

Keywords: Unit root testing; Explosive autoregression; Asymptotic power; Initial condition (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:122:y:2014:i:1:p:64-68

DOI: 10.1016/j.econlet.2013.11.006

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