Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5059151 | Economics Letters | 2014 | 5 Pages |
â¢We consider upper-tail unit root tests against an explosive alternative.â¢Tests based on quasi-differenced detrending more powerful than OLS-based tests.â¢Asymptotic power gains smaller than for lower-tail tests.â¢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.