On the performance of the variance ratio unit root tests with flexible Fourier form

Abstract

This article introduces a new unit root test that combines the variance ratio framework with the Flexible Fourier Form under the generalized least squares detrending mechanism. The advantage of the proposed method against its alternatives can be listed as: (1) it suggests a non-parametric procedure that does not require any parametric or semi-parametric model to remove serial correlation in the innovation process; (2) it can reasonably adapt itself to deal with the multiple structural breaks with various functional specifications. In the simulation exercises, we show that the proposed method exhibits satisfactory performance in the size and size-adjusted power analysis.

Keywords:

• Unit root test
• flexible Fourier form
• variance ratio
• GLS detrending

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The simulation results for different specifications based on n, κ, α and β are available upon request.

2 The rest of the results are available upon request.

3 The results for the empirical power analysis are also available upon request.

4 The results with different number of Fourier frequency and κ values are also available upon request. Additional results do not show any significant difference from the reported results.