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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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    File URL: http://www.sciencedirect.com/science/article/pii/S1049007813000377
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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. Chang, Yoosoon, 2002. "Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency," Working Papers 2000-08, Rice University, Department of Economics.
    2. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
    3. Paresh Kumar Narayan & Ruipeng Liu, 2010. "Are Shocks to Commodity Prices Persistent?," Economics Series 2010_02, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
    4. Joakim Westerlund & David L. Edgerton, 2007. "New Improved Tests for Cointegration with Structural Breaks," Journal of Time Series Analysis, Wiley Blackwell, vol. 28(2), pages 188-224, 03.
    5. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
    6. Nelson, C-R & Murray, C-J, 1997. "The Uncertain Trend in U.S. GDP," Discussion Papers in Economics at the University of Washington 97-05, Department of Economics at the University of Washington.
    7. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
    8. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, 07.
    9. 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.
    10. 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.
    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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