Powerful Trend Function Tests That Are Robust to Strong Serial Correlation, With an Application to the Prebisch-Singer Hypothesis
AbstractIn this paper we propose tests for hypotheses regarding the parameters of the deterministic trend function of a univariate time series. The tests do not require knowledge of the form of serial correlation in the data and they are robust to strong serial correlation. The data can contain a unit root and the tests still have the correct size asymptotically. The tests we analyze are standard heteroskedasticity autocorrelation (HAC) robust tests based on nonparametric kernel variance estimators. We analyze these tests using the Ã¯Â¾â¦xed-b asymptotic framework recently proposed by Kiefer and Vogelsang (2002). This analysis allows us to analyze the power properties of the tests with regards to bandwidth and kernel choices. Our analysis shows that among popular kernels, there are speciÃ¯Â¾â¦c kernel and bandwidth choices that deliver tests with maximal power within a speciÃ¯Â¾â¦c class of tests. Based on the theoretical results, we propose a data dependent bandwidth rule that maximizes integrated power. Our recommended test is shown to have power that dominates a related test proposed by Vogelsang (1998). We apply the recommended test to the logarithm of a net barter terms of trade series and we Ã¯Â¾â¦nd that this series has a statistically signiÃ¯Â¾â¦cant negative slope. This Ã¯Â¾â¦nding is consistent with the well known Prebisch-Singer hypothesis.
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Bibliographic InfoArticle provided by American Statistical Association in its journal Journal of Business and Economic Statistics.
Volume (Year): 23 (2005)
Issue (Month): (October)
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Web page: http://www.amstat.org/publications/jbes/index.cfm?fuseaction=main
Other versions of this item:
- Bunzel, Helle & Vogelsang, Timothy J., 2003. "Powerful Trend Function Tests That Are Robust to Strong Serial Correlation with an Application to the Prebisch-Singer Hypothesis," Staff General Research Papers 10353, Iowa State University, Department of Economics.
- Helle Bunzel & Timothy Vogelsang, 2003. "Powerful Trend Function Tests That are Robust to Strong Serial Correlation with an Application to the Prebisch Singer Hypothesis," Econometrics 0304002, EconWPA.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
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- Lutz, Matthias G, 1999. "A General Test of the Prebisch-Singer Hypothesis," Review of Development Economics, Wiley Blackwell, vol. 3(1), pages 44-57, February.
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