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, 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
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)
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