Abstract
A moving ratio monitoring scheme is proposed to detect changes between trend stationary ( I ( 0 ) ) and difference stationary ( I ( 1 ) ) regimes. It is consistent both for I ( 1 ) to I ( 0 ) and I ( 0 ) to I ( 1 ) change, and has less computation time. The empirical size, power and average run length of the test are evaluated in a simulation study. Simulations indicate that the new method achieves a far superior finite sample performance as compared with the existing variance ratio monitoring procedure in the literature. A modified version is also considered under I ( 0 ) null hypothesis in the presence of a variance shift. In addition, we apply the procedure to investigate the US inflation rate data and show how it is used to detect multiple changes in persistence.
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