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Testing for unit roots based on sample autocovariances

Methodology 2022-06-15 v2

Abstract

We propose a new unit-root test for a stationary null hypothesis H0H_0 against a unit-root alternative H1H_1. Our approach is nonparametric as H0H_0 only assumes that the process concerned is I(0)I(0) without specifying any parametric forms. The new test is based on the fact that the sample autocovariance function (ACVF) converges to the finite population ACVF for an I(0)I(0) process while it diverges to infinity for a process with unit-roots. Therefore the new test rejects H0H_0 for the large values of the sample ACVF. To address the technical challenge `how large is large', we split the sample and establish an appropriate normal approximation for the null-distribution of the test statistic. The substantial discriminative power of the new test statistic is rooted from the fact that it takes finite value under H0H_0 and diverges to infinity under H1H_1. This allows us to truncate the critical values of the test to make it with the asymptotic power one. It also alleviates the loss of power due to the sample-splitting. The test is implemented in a user-friendly R-function.

Keywords

Cite

@article{arxiv.2006.07551,
  title  = {Testing for unit roots based on sample autocovariances},
  author = {Jinyuan Chang and Guanghui Cheng and Qiwei Yao},
  journal= {arXiv preprint arXiv:2006.07551},
  year   = {2022}
}
R2 v1 2026-06-23T16:17:42.718Z