Testing for unit roots with stationary covariates
AbstractWe derive the family of tests for a unit root with maximal power against a point alternative when an arbitrary number of stationary covariates are modeled with the potentially integrated series. We show that very large power gains are available when such covariates available. We then derive tests which are simple to construct (involving the running of vector autoregressions) and achieve at a point the power envelopes derived under very general conditions. These tests are excellent properties in small samples. We also show that these are obvious and internally consistent tests to run when identifying structural VAR's using long run restrictions.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 115 (2003)
Issue (Month): 1 (July)
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Web page: http://www.elsevier.com/locate/jeconom
Other versions of this item:
- Graham Elliott & Michael Jansson, . "Testing for Unit Roots with Stationary Covariates," Economics Working Papers 2000-6, School of Economics and Management, University of Aarhus.
- Elliott, Graham & Jansson, Michael, 2000. "Testing for Unit Roots with Stationary Covariances," University of California at San Diego, Economics Working Paper Series qt47k7z69n, Department of Economics, UC San Diego.
- Elliott, Graham & Jansson, Michael, 2002. "Testing for Unit Roots with Stationary Covariates," University of California at San Diego, Economics Working Paper Series qt4v35s2gv, Department of Economics, UC San Diego.
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
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