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On maintaining the power of the Kapetanios--Snell--Shin (KSS) test under uncertain initial conditions

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  • Jen-Je Su
  • Duc-Tho Nguyen
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    Abstract

    This article investigates the impact of initial condition (specifically, the deviation of the initial observation from the underlying deterministic component) on the power properties of the nonlinear Kapetanios-- Snell--Shin (KSS) unit root test. While the Generalized Least Squares (GLS)-detrended KSS test has significant power advantage over the Ordinary Least Squares (OLS)-detrended KSS test if the initial deviation is small, the opposite occurs if the initial deviation is large. These results are similar to those found previously for the Dickey--Fuller (DF) test. To maintain good power properties across different initial conditions, a Union of Rejections (UR) strategy is adopted; the strategy is demonstrated to be useful.

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    File URL: http://hdl.handle.net/10.1080/13504851.2011.607120
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 19 (2012)
    Issue (Month): 9 (June)
    Pages: 891-896

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    Handle: RePEc:taf:apeclt:v:19:y:2012:i:9:p:891-896

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