Adaptive wild bootstrap tests for a unit root with nonstationary volatility
Recent research has emphasised that permanent changes in the innovation variance (caused by structural shifts or an integrated volatility process) lead to size distortions in conventional unit root tests. Cavaliere and Taylor (2008) show how these size distortions may be resolved using the wild boot...
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| Format: | Article |
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Wiley
2018
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| Online Access: | https://eprints.nottingham.ac.uk/44403/ |
| _version_ | 1848796908827443200 |
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| author | Boswijk, Peter Zu, Yang |
| author_facet | Boswijk, Peter Zu, Yang |
| author_sort | Boswijk, Peter |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | Recent research has emphasised that permanent changes in the innovation variance (caused by structural shifts or an integrated volatility process) lead to size distortions in conventional unit root tests. Cavaliere and Taylor (2008) show how these size distortions may be resolved using the wild bootstrap. In this paper, we first derive the asymptotic power envelope for the unit root testing problem when the nonstationary volatility process is known. Next, we show that under suitable conditions, adaptation with respect to the volatility process is possible, in the sense that nonparametric estimation of the volatility process leads to the same asymptotic power envelope. Implementation of the resulting test involves cross-validation and the wild bootstrap. A Monte Carlo experiment shows that the asymptotic results are reflected in finite sample properties, and an empirical analysis of real exchange rates illustrates the applicability of the proposed procedures. |
| first_indexed | 2025-11-14T19:55:28Z |
| format | Article |
| id | nottingham-44403 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:55:28Z |
| publishDate | 2018 |
| publisher | Wiley |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-444032020-05-04T19:27:15Z https://eprints.nottingham.ac.uk/44403/ Adaptive wild bootstrap tests for a unit root with nonstationary volatility Boswijk, Peter Zu, Yang Recent research has emphasised that permanent changes in the innovation variance (caused by structural shifts or an integrated volatility process) lead to size distortions in conventional unit root tests. Cavaliere and Taylor (2008) show how these size distortions may be resolved using the wild bootstrap. In this paper, we first derive the asymptotic power envelope for the unit root testing problem when the nonstationary volatility process is known. Next, we show that under suitable conditions, adaptation with respect to the volatility process is possible, in the sense that nonparametric estimation of the volatility process leads to the same asymptotic power envelope. Implementation of the resulting test involves cross-validation and the wild bootstrap. A Monte Carlo experiment shows that the asymptotic results are reflected in finite sample properties, and an empirical analysis of real exchange rates illustrates the applicability of the proposed procedures. Wiley 2018-01-16 Article PeerReviewed Boswijk, Peter and Zu, Yang (2018) Adaptive wild bootstrap tests for a unit root with nonstationary volatility. Econometrics Journal, 21 (2). pp. 87-113. ISSN 1368-423X Unit root Adaptive testing Nonparametric estimation Power envelope Wild boot-strap http://onlinelibrary.wiley.com/doi/10.1111/ectj.12100/abstract doi:10.1111/ectj.12100 doi:10.1111/ectj.12100 |
| spellingShingle | Unit root Adaptive testing Nonparametric estimation Power envelope Wild boot-strap Boswijk, Peter Zu, Yang Adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| title | Adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| title_full | Adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| title_fullStr | Adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| title_full_unstemmed | Adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| title_short | Adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| title_sort | adaptive wild bootstrap tests for a unit root with nonstationary volatility |
| topic | Unit root Adaptive testing Nonparametric estimation Power envelope Wild boot-strap |
| url | https://eprints.nottingham.ac.uk/44403/ https://eprints.nottingham.ac.uk/44403/ https://eprints.nottingham.ac.uk/44403/ |