Wavelet energy ratio unit root tests

Mirza Trokić

Econometric Reviews, 2019, vol. 38, issue 1, 69-94

Abstract: This article uses wavelet theory to propose a frequency domain nonparametric and tuning parameter-free family of unit root tests. The proposed test exploits the wavelet power spectrum of the observed series and its fractional partial sum to construct a test of the unit root based on the ratio of the resulting scaling energies. The proposed statistic enjoys good power properties and is robust to severe size distortions even in the presence of serially correlated MA(1) errors with a highly negative moving average (MA) parameter, as well as in the presence of random additive outliers. Any remaining size distortions are effectively eliminated using a novel wavestrapping algorithm.

Date: 2019
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DOI: 10.1080/07474938.2016.1222232

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