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A New Test for Nonstationarity Against the Stable Alternative

Published online by Cambridge University Press:  11 February 2009

Karim M. Abadir
Karim M. Abadir
Affiliation:
University of Exeter
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Abstract

It was recently shown (Abadir, 1993b) that nonstationarity causes the limiting distributions of the Wald (W) and Lagrange multiplier (LM) statistics to become different from each other. This paper demonstrates that such a divergence between the two distributions can be used as an indicator of the presence of a unit root. A test based on this idea is devised by modifying the normalized autocorrelation coefficient (NAC). It is then shown to be an improvement on NAC in large samples and an improvement on other existing tests in large effective samples. The paper also investigates the effect of nonstationarity on the well-known inequality W ≥ LR ≥ LM.

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Articles
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Econometric Theory , Volume 11 , Issue 1 , February 1995 , pp. 81 - 104
Copyright
Copyright © Cambridge University Press 1995

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