Title: A simple unit root test consistent against any stationary alternative
Authors: Frederique Bec - THEMA University of Cergy-Pontoise and CREST (France) [presenting]
Alain Guay - UQAM and CIRPEE (Canada)
Abstract: A $t-$like unit root test is proposed, which is consistent against any stationary alternatives, nonlinear or noncausal ones included. It departs from existing tests in that it uses an unbounded, not adaptive set of thresholds. In our setup, thanks to the straightforward nonlinear stationary alternative specification and the particular choice of the thresholds set, the proposed unit root test contains the standard ADF test as a special case. This, in turn, yields a sufficient condition for consistency against any ergodic stationary alternative. From a Monte-Carlo study, it turns out that the power of our unbounded non-adaptive tests, in their average and exponential versions, outperforms existing bounded tests, either adaptive or not. This is illustrated by an application to interest rate spread data.