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Boundary limit theory for functional local to unity regression

Boundary limit theory for functional local to unity regression
Boundary limit theory for functional local to unity regression

This article studies functional local unit root models (FLURs) in which the autoregressive coefficient may vary with time in the vicinity of unity. We extend conventional local to unity (LUR) models by allowing the localizing coefficient to be a function which characterizes departures from unity that may occur within the sample in both stationary and explosive directions. Such models enhance the flexibility of the LUR framework by including break point, trending, and multidirectional departures from unit autoregressive coefficients. We study the behavior of this model as the localizing function diverges, thereby determining the impact on the time series and on inference from the time series as the limits of the domain of definition of the autoregressive coefficient are approached. This boundary limit theory enables us to characterize the asymptotic form of power functions for associated unit root tests against functional alternatives. Both sequential and simultaneous limits (as the sample size and localizing coefficient diverge) are developed. We find that asymptotics for the process, the autoregressive estimate, and its t-statistic have boundary limit behavior that differs from standard limit theory in both explosive and stationary cases. Some novel features of the boundary limit theory are the presence of a segmented limit process for the time series in the stationary direction and a degenerate process in the explosive direction. These features have material implications for autoregressive estimation and inference which are examined in the article.

Boundary asymptotics, Functional local unit root, Local to unity, Sequential limits, Simultaneous limits, Unit root model
0143-9782
Bykhovskaya, Anna
a010627a-c30d-4b8e-ac97-7550f92646f9
Phillips, Peter C.B.
f67573a4-fc30-484c-ad74-4bbc797d7243
Bykhovskaya, Anna
a010627a-c30d-4b8e-ac97-7550f92646f9
Phillips, Peter C.B.
f67573a4-fc30-484c-ad74-4bbc797d7243

Bykhovskaya, Anna and Phillips, Peter C.B. (2018) Boundary limit theory for functional local to unity regression. Journal of Time Series Analysis. (doi:10.1111/jtsa.12285).

Record type: Article

Abstract

This article studies functional local unit root models (FLURs) in which the autoregressive coefficient may vary with time in the vicinity of unity. We extend conventional local to unity (LUR) models by allowing the localizing coefficient to be a function which characterizes departures from unity that may occur within the sample in both stationary and explosive directions. Such models enhance the flexibility of the LUR framework by including break point, trending, and multidirectional departures from unit autoregressive coefficients. We study the behavior of this model as the localizing function diverges, thereby determining the impact on the time series and on inference from the time series as the limits of the domain of definition of the autoregressive coefficient are approached. This boundary limit theory enables us to characterize the asymptotic form of power functions for associated unit root tests against functional alternatives. Both sequential and simultaneous limits (as the sample size and localizing coefficient diverge) are developed. We find that asymptotics for the process, the autoregressive estimate, and its t-statistic have boundary limit behavior that differs from standard limit theory in both explosive and stationary cases. Some novel features of the boundary limit theory are the presence of a segmented limit process for the time series in the stationary direction and a degenerate process in the explosive direction. These features have material implications for autoregressive estimation and inference which are examined in the article.

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Accepted/In Press date: 22 December 2017
e-pub ahead of print date: 5 February 2018
Keywords: Boundary asymptotics, Functional local unit root, Local to unity, Sequential limits, Simultaneous limits, Unit root model

Identifiers

Local EPrints ID: 418703
URI: http://eprints.soton.ac.uk/id/eprint/418703
ISSN: 0143-9782
PURE UUID: c6752560-3acd-4b7a-9194-762c025668d1
ORCID for Peter C.B. Phillips: ORCID iD orcid.org/0000-0003-2341-0451

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Date deposited: 19 Mar 2018 17:30
Last modified: 17 Dec 2019 05:35

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