On the performance of the variance ratio unit root tests with flexible Fourier form

Erolu B. A., YILDIRIM S.

JOURNAL OF APPLIED STATISTICS, vol.48, no.13-15, pp.2560-2579, 2021 (SCI-Expanded) identifier identifier identifier

  • Publication Type: Article / Article
  • Volume: 48 Issue: 13-15
  • Publication Date: 2021
  • Doi Number: 10.1080/02664763.2020.1796939
  • Journal Name: JOURNAL OF APPLIED STATISTICS
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Academic Search Premier, ABI/INFORM, Aerospace Database, Business Source Elite, Business Source Premier, CAB Abstracts, Veterinary Science Database, zbMATH
  • Page Numbers: pp.2560-2579
  • Keywords: Unit root test, flexible Fourier form, variance ratio, GLS detrending, TERM STRUCTURE, TIME-SERIES, COINTEGRATION, HYPOTHESIS, STATIONARITY, BREAKS, NULL
  • Anadolu University Affiliated: Yes

Abstract

This article introduces a new unit root test that combines the variance ratio framework with the Flexible Fourier Form under the generalized least squares detrending mechanism. The advantage of the proposed method against its alternatives can be listed as: (1) it suggests a non-parametric procedure that does not require any parametric or semi-parametric model to remove serial correlation in the innovation process; (2) it can reasonably adapt itself to deal with the multiple structural breaks with various functional specifications. In the simulation exercises, we show that the proposed method exhibits satisfactory performance in the size and size-adjusted power analysis.