Convolution Based Unit Root Processes: a Simulation Approach

Abstract

We propose a convolution based approach to the simulation of a modified version of a unit root process where the state variable $Y_{t-1}$ is dependent on the innovation $\varepsilon_t$. The dependence structure is given by a copula function $C$. We study by simulation the effect of a negative correlation on the properties of unit roots. We call this process C-UR(1).