We investigate the power and size performance of unit root tests when the true data generating process undergoes Markov regime-switching. All tests, including those robust to a single break in trend growth rate, have very low power against a process with a Markov-switching trend growth rate as in Lam (1990). However, for the case of business cycle non-linearities, unit root tests are very power...

A new bootstrap procedure for unit root testing based on the tapered block bootstrap is introduced. This procedure is similar to previous tests that were based on the block bootstrap and stationary bootstrap, but it has the advantage of the tapering procedure that has been previously shown to reduce the bias of the variance estimator by an order of magnitude. In this paper, the procedure is def...

a r t i c l e i n f o JEL classification: C10 C12 C22 C50 Keywords: (Nonlinear) unit root test Heteroskedasticity Wild bootstrapping Purchasing power parity In spite of the extensive research which has already been undertaken, the issue as to whether Purchasing Power Parity (PPP) empirically holds, continues to be strongly debated. Existing studies have been criticized for their reliance on uni...

The exact maximum likelihood estimate (MLE) provides a test statistic for the unit root test that is more powerful (Fuller, 1996, p. 577) than the usual least squares approach. In this paper a new derivation is given for the asymptotic distribution of this test statistic that is simpler and more direct than the previous method. The response surface regression method is used to obtain a fast alg...

Endogenous variables in structural models of agricultural commodity markets are typically treated as stationary. Yet, tests for unit roots have rather frequently implied that commodity prices are not stationary. This seeming inconsistency is investigated by focusing on alternative specifications of unit root tests. We apply various specifications to Illinois farm prices of corn, soybeans, barro...

This introduction to the CADFtest package is a (slightly) modified version of Lupi (2009), published in the Journal of Statistical Software. CADFtest is an R package for testing for the presence of a unit root in a time series using the Covariate Augmented Dickey-Fuller (CADF) test proposed in Hansen (1995b). The procedures presented here are user friendly, allow fully automatic model specifica...

Abstract. We analyze the statistical properties of nonparametrically estimated functions in a functional-coefficient model if the data has a unit root. We show that the estimated function converges at a faster rate than under the stationary case. However, the estimator has a mixed normal distribution so that point-wise confidence intervals are calculated using the usual normal distribution theo...

This paper develops a wavelet (spectral) approach to test the presence of a unit root in a stochastic process. The wavelet approach is appealing, since it is based directly on the different behavior of the spectra of a unit root process and that of a short memory stationary process. By decomposing the variance (energy) of the underlying process into the variance of its low frequency components ...

Log periodogram (LP) regression is shown to be consistent and to have a mixed normal limit distribution when the memory parameter d 1⁄4 1. Gaussian errors are not required. The proof relies on a new result showing that asymptotically infinite collections of discrete Fourier transforms (dft’s) of a short memory process at the fundamental frequencies in the vicinity of the origin can be treated a...

A novel simulation based approach to unit root testing is proposed in this paper. The test is constructed from the distinct orders in probability of the OLS parameter estimates obtained from a spurious and an unbalanced regression, respectively. While the parameter estimate from a regression of two integrated and uncorrelated time series is of order Op(1), the estimate is of order Op(T −1) if t...