Bounded integrated processes and unit root tests

Giuseppe Cavaliere

Statistical Methods & Applications, 2002, vol. 11, issue 1, No 3, 69 pages

Abstract: Abstract In the framework of integrated processes, the problem of testing the presence of unknown boundaries which constrain the process to move within a closed interval is considered. To analyze this problem, the concept of bounded integrated process is introduced, thus allowing to formally define boundary conditions for I(1) processes. A new class of tests, which are based on the rescaled range of the process, is introduced in order to test the null hypothesis of no boundary conditions. The limit distribution of the test statistics involved can be expressed in terms of the distribution of the range of Brownian functionals, while the power properties are obtained by deriving some asymptotic results for I(1) processes with boundary conditions. Both theoretical and simulation investigations show that range-based tests outperform standard unit root tests significantly when used to detect the presence of boundary conditions.

Keywords: Bounded integrated processes; Range statistics; Unit root tests; Regulated Brownian motion (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/BF02511445

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