Inconsistency of a Unit Root Test against Stochastic Unit Root Processes

Daisuke Nagakura

No 09-E-23, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: In this paper, we develop the asymptotic theory of Hwang and Basawa (2005) for explosive random coefficient autoregressive (ERCA) models. Applying the theory, we prove that a locally best invariant (LBI) test in McCabe and Tremayne (1995), which is for the null of a unit root (UR) process against the alternative of a stochastic unit root (STUR) process, is inconsistent against a class of ERCA models. This class includes a class of STUR processes as special cases. We show, however, that the well-known Dickey-Fuller (DF) UR tests and an LBI test of Lee (1998) are consistent against a particular case of this class of ERCA models.

Keywords: Locally Best Invariant Test; Consistency; Dickey-Fuller Test; LBI; RCA; STUR (search for similar items in EconPapers)
JEL-codes: C12 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:09-e-23

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