Quantile inference for nonstationary processes with infinite variance innovations

Based on the quantile regression, we extend Koenker and Xiao (2004) and Ling and McAleer (2004)’s works from finite-variance innovations to infinite-variance innovations. A robust t-ratio statistic to test for unit-root and a re-sampling method to approximate the critical values of the t-ratio statistic are proposed in this paper. It is shown that the limit distribution of the statistic is a functional of stable processes and a Brownian bridge. The finite sample studies show that the proposed t-ratio test always performs significantly better than the conventional unit-root tests based on least squares procedure, such as the Augmented Dick Fuller (ADF) and Philliphs-Perron (PP) test, in the sense of power and size when infinite-variance disturbances exist. Also, quantile Kolmogorov-Smirnov (QKS) statistic and quantile Cramer-von Mises (QCM) statistic are considered, but the finite sample studies show that they perform poor in power and size, respectively. An application to the Consumer Price Index for nine countries is also presented.