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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- 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.
- 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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