Unit root tests and dramatic shifts with infinite variance processes |
| |
Authors: | Luis F Martins |
| |
Institution: | Department of Quantitative Methods , ISCTE Business School , Lisbon , Portugal |
| |
Abstract: | A model which explains data that is subject to sudden structural changes of unspecified nature is presented. The structural shifts are generated by a random walk component whose innovations belong to the normal domain of attraction of a symmetric stable law. To test the model against the stationarity case, several non-parametric, and regression-based statistics are studied. The non-parametric tests are a generalization of the variance ratio test to innovations with heavy-tailed distributions. The tests are consistent and shown to have good finite sample size and power properties and are applied to a set of economic variables. |
| |
Keywords: | unit root stable processes partial sums limit distributions empirical size and power |
|
|