Sign tests for unit root and change in persistence
by Marilena Furno
International Journal of Computational Economics and Econometrics (IJCEE), Vol. 4, No. 3/4, 2014

Abstract: The behaviour of unit root tests defined in terms of sign transform is here analysed. The sign transform allows us to gain robustness to non-normality. Contrarily to the standard unit root tests, our results show that these tests are very reliable in the presence of breaks, provided there is no change in the persistence of a series. In case of change in persistence, the paper proposes to compare sign-based test functions separately computed before and after the change point. A statistically significant difference would signal the presence of change in persistence. An example and a Monte Carlo study conclude the analysis.

Online publication date: Sun, 14-Sep-2014

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