In this paper we analyze the effects of a very general class of time-varying variances on well-known “stationarity” tests of the I(0) null hypothesis. Our setup allows, among other things, for both single and multiple breaks in variance, smooth transition variance breaks, and piecewise-linear trending variances. We derive representations for the limiting distributions of the test statistics under variance breaks in the errors of I(0), I(1), and near-I(1) data generating processes, demonstrating the dependence of these representations on the precise pattern followed by the variance processes. Monte Carlo methods are used to quantify the effects of fixed and smooth transition single breaks and trending variances on the size and power properties of the tests. Finally, bootstrap versions of the tests are proposed that provide a solution to the inference problem.

Cavaliere G., Taylor A.M.R. (2005). Stationarity tests under time-varying variances. ECONOMETRIC THEORY, 21, 1112-1129.

Stationarity tests under time-varying variances

CAVALIERE, GIUSEPPE;
2005

Abstract

In this paper we analyze the effects of a very general class of time-varying variances on well-known “stationarity” tests of the I(0) null hypothesis. Our setup allows, among other things, for both single and multiple breaks in variance, smooth transition variance breaks, and piecewise-linear trending variances. We derive representations for the limiting distributions of the test statistics under variance breaks in the errors of I(0), I(1), and near-I(1) data generating processes, demonstrating the dependence of these representations on the precise pattern followed by the variance processes. Monte Carlo methods are used to quantify the effects of fixed and smooth transition single breaks and trending variances on the size and power properties of the tests. Finally, bootstrap versions of the tests are proposed that provide a solution to the inference problem.
2005
Cavaliere G., Taylor A.M.R. (2005). Stationarity tests under time-varying variances. ECONOMETRIC THEORY, 21, 1112-1129.
Cavaliere G.; Taylor A.M.R.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/22543
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