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
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..View full abstract
Awarded by Economic and Social Research Council of the United Kingdom
We thank the Guest Editor, Tong Li, two anonymous referees, Giuseppe Cavaliere, and participants at the International Conference in Celebration of the 65th Birthday of Maxwell King for their helpful and constructive comments on earlier versions of this paper. Taylor gratefully acknowledges financial support provided by the Economic and Social Research Council of the United Kingdom under research grant ES/M01147X/1.