TESTING FOR COEFFICIENT RANDOMNESS IN LOCAL-TO-UNITY AUTOREGRESSIONS
Nishi, Mikihito
This study proposes a test for coefficient randomness in autoregressive models where the autoregressive coefficient is local to unity, which is empirically relevant given earlier work. Under this specification, we analyze the effect of the correlation between the random coefficient and disturbance on the properties of tests, a matter that remains largely unexplored in the literature. Our analysis reveals that tests proposed in earlier studies can have poor power when the correlation is moderate