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A simple modification to improve the finite sample properties of Ng and Perron's unit root tests

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  • Perron, Pierre
  • Qu, Zhongjun

Abstract

The tests introduced by Ng and Perron (2001, Econometrica) have the drawback that for non-local alternatives the power can be very small. The aim of this note is to point out an easy solution to this power reversal problem, which in addition leads to tests having an exact size even closer to nominal size. It involves using OLS instead of GLS detrended data when constructing the modified information criterion.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 94 (2007)
Issue (Month): 1 (January)
Pages: 12-19

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Handle: RePEc:eee:ecolet:v:94:y:2007:i:1:p:12-19

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  1. 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.
  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. Niels Haldrup & Michael Jansson, 2005. "Improving Size and Power in Unit Root Testing," Economics Working Papers 2005-02, School of Economics and Management, University of Aarhus.
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