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Simple unit root testing in generally trending data with an application to precious metal prices in Asia

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  • Westerlund, Joakim
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    Abstract

    This paper proposes a new unit root test that is general enough to accommodate a potentially non-linear deterministic trend function, making it one of the most general tests around. However, the main advantage lies with its simple implementation. In particular, the asymptotic critical values are shown to be “almost” independent of the deterministic trend function, and as a result the test can be implemented without the need for model-specific critical values. The new test is applied to a sample consisting of monthly prices of four precious metals for a number of Asian countries.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Asian Economics.

    Volume (Year): 28 (2013)
    Issue (Month): C ()
    Pages: 12-27

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    Handle: RePEc:eee:asieco:v:28:y:2013:i:c:p:12-27

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    Web page: http://www.elsevier.com/locate/asieco

    Related research

    Keywords: Unit root test; Deterministic trend; Recursive detrending;

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    References

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    1. Westerlund, Joakim & Edgerton , David, 2006. "New Improved Tests for Cointegration with Structural Breaks," Working Papers 2006:3, Lund University, Department of Economics.
    2. Chang, Yoosoon, 2002. "Nonlinear IV unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 110(2), pages 261-292, October.
    3. Murray, Christian J. & Nelson, Charles R., 2000. "The uncertain trend in U.S. GDP," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 79-95, August.
    4. David Harvey & Stephen Leybourne & A.M. Robert Taylor, 2011. "Testing for Unit Roots and the Impact of Quadratic Trends, with an Application to Relative Primary Commodity Prices," Econometric Reviews, Taylor & Francis Journals, vol. 30(5), pages 514-547.
    5. Narayan, Paresh Kumar & Liu, Ruipeng, 2011. "Are shocks to commodity prices persistent?," Applied Energy, Elsevier, vol. 88(1), pages 409-416, January.
    6. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    7. Xu, Xiaoqing Eleanor & Fung, Hung-Gay, 2005. "Cross-market linkages between U.S. and Japanese precious metals futures trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 107-124, April.
    8. Jushan Bai & Serena Ng, 2001. "A PANIC Attack on Unit Roots and Cointegration," Boston College Working Papers in Economics 519, Boston College Department of Economics.
    9. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
    10. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
    11. Murray, Christian J & Nelson, Charles R, 2004. "The Great Depression and Output Persistence: A Reply to Papell and Prodan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 429-32, June.
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