Maximum likelihood unit rooting test in the presence GARCH: A new test with increased power

Steve Cook (1)

1 Economics

The literature on testing the unit root hypothesis in the presence of GARCH errors is extended. A new test based upon the combination of local-to-unity detrending and joint maximum likelihood estimation of the autoregressive parameter and GARCH process is presented. The finite sample distribution of the test is derived under alternative decisions regarding the deterministic terms employed. Using Monte Carlo simulation, the newly proposed ML t-test is shown to exhibit increased power of relative to rival tests. Finally, the empirical relevance of the simulation results is illustrated via an application to real GDP for the UK

Mots clés: Physical Sciences

Steve Cook. Maximum likelihood unit rooting test in the presence GARCH: A new test with increased power. Communications in Statistics - Simulation and Computation, 2008, 37 (04), pp.756-765. ⟨10.1080/03610910701779726⟩. ⟨hal-00514322⟩