A unified study of explosive processes with a root in the neighborhood of the unit circle

Abstract

This study is dedicated to autoregressive processes with stable and explosive time-varying coefficients, with a particular emphasis on a root located inside or outside the unit circle but converging towards the unit circle as the sample size increases (so that the limit process is integrated). Our objective is to develop a unified asymptotic theory that connects the classical stable, unstable and explosive regimes. By considering roots approaching the unit circle from both the stationary and explosive sides, we investigate how the corresponding asymptotic behaviors (of the process and the OLS) interact, and we try to build bridges between the rates associated with these regimes. This perspective provides a framework for understanding mixed autoregressive dynamics having a root in the neighborhood of the unit circle, provided a fairly general set of conditions.