Asymptotic behaviour of tests for a unit root against an explosive alternative

- We consider upper-tail unit root tests against an explosive alternative.
- Tests based on quasi-differenced detrending more powerful than OLS-based tests.
- Asymptotic power gains smaller than for lower-tail tests.
- Large initial conditions do not alter power ranking.

We compare the asymptotic local power of upper-tail unit root tests against an explosive alternative based on ordinary least squares (OLS) and quasi-differenced (QD) demeaning/detrending. We find that under an asymptotically negligible initialisation, the QD-based tests are near asymptotically efficient and generally offer superior power to OLS-based approaches; however, the power gains are much more modest than in the lower-tail testing context. We also find that asymptotically non-negligible initial conditions do not affect the power ranking in the same way as they do for lower-tail tests, with the QD-based tests retaining a power advantage in such cases.