A simple modification to improve the finite sample properties of Ng and Perron's unit root tests
AbstractThe 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 InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 94 (2007)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/ecolet
Other versions of this item:
- Pierre Perron & Zhongjun Qu, 2006. "A Simple Modification to Improve the Finite Sample Properties of Ng and Perron’s Unit Root Tests," Boston University - Department of Economics - Working Papers Series WP2006-010, Boston University - Department of Economics.
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