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 are 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 have 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 InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2000-6.
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Unit roots; power envelope; structural VAR's;
Other versions of this item:
- 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.
- 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.
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-10-05 (All new papers)
- NEP-ECM-2000-10-05 (Econometrics)
- NEP-ETS-2000-10-05 (Econometric Time Series)
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 & Michael Jansson & Elena Pesavento, 2003.
"Optimal Power For Testing Potential Cointegrating Vectors with Known Parameters for Nonstationarity,"
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- Graham Elliott & Michael Jansson & Elena Pesavento, 2005. "Optimal Power for Testing Potential Cointegrating Vectors With Known Parameters for Nonstationarity," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 34-48, January.
- Elliott, Graham, 1999.
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- Caporale, Guglielmo Maria & Pittis, Nikitas, 1999. " Unit Root Testing Using Covariates: Some Theory and Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 583-95, November.
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