Semiparametrically Point-Optimal Hybrid Rank Tests for Unit Roots

Bo Zhou, Ramon van den Akker and Bas J. M. Werker

Papers from arXiv.org

Abstract: We propose a new class of unit root tests that exploits invariance properties in the Locally Asymptotically Brownian Functional limit experiment associated to the unit root model. The invariance structures naturally suggest tests that are based on the ranks of the increments of the observations, their average, and an assumed reference density for the innovations. The tests are semiparametric in the sense that they are valid, i.e., have the correct (asymptotic) size, irrespective of the true innovation density. For a correctly specified reference density, our test is point-optimal and nearly efficient. For arbitrary reference densities, we establish a Chernoff-Savage type result, i.e., our test performs as well as commonly used tests under Gaussian innovations but has improved power under other, e.g., fat-tailed or skewed, innovation distributions. To avoid nonparametric estimation, we propose a simplified version of our test that exhibits the same asymptotic properties, except for the Chernoff-Savage result that we are only able to demonstrate by means of simulations.

Date: 2018-06
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-knm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1806.09304 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1806.09304

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators (help@arxiv.org).