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Deterministic seasonality in Dickey–Fuller tests: should we care?

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  • Artur Silva Lopes

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Abstract

This paper investigates the properties of Dickey-Fuller tests for seasonally unadjusted quarterly data when deterministic seasonality is present but it is neglected in the test regression. While for the random walk case the answer is straightforward, an extensive Monte Carlo study has to be performed for more realistic processes and testing strategies. The most important conclusion is that the common perception that deterministic seasonality has nothing to do with the long-run properties of the data is incorrect. Further numerical evidence on the shortcomings of the general-to-specific t-sig lag selection method is also presented.

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Bibliographic Info

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 31 (2006)
Issue (Month): 1 (March)
Pages: 165-182

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Handle: RePEc:spr:empeco:v:31:y:2006:i:1:p:165-182

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Keywords: Unit root; Dickey–Fuller tests; Similar tests; Seasonality; Monte Carlo; C22; C52;

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Cited by:
  1. Matei Demetrescu & Uwe Hassler, 2007. "Effect of neglected deterministic seasonality on unit root tests," Statistical Papers, Springer, vol. 48(3), pages 385-402, September.
  2. B. da Silva Lopes, Artur C., 2005. "Finite sample effects of pure seasonal mean shifts on Dickey-Fuller tests," MPRA Paper 125, University Library of Munich, Germany, revised May 2006.

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