Journal article

Level shift estimation in the presence of non-stationary volatility with an application to the unit root testing problem

D Harris, H Kew, AMR Taylor

Journal of Econometrics | Elsevier | Published : 2020

Abstract

This paper focuses on the estimation of the location of level breaks in time series whose shocks display non-stationary volatility (permanent changes in unconditional volatility). We propose a new feasible weighted least squares (WLS) estimator, based on an adaptive estimate of the volatility path of the shocks. We show that this estimator belongs to a generic class of weighted residual sum of squares which also contains the ordinary least squares (OLS) and WLS estimators, the latter based on the true volatility process. For fixed magnitude breaks we show that the consistency rate of the generic estimator is unaffected by non-stationary volatility. We also provide local limiting distribution..

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University of Melbourne Researchers