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“GLS based unit root tests for bounded processes”

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Author Info

  • Josep Lluís Carrion-i-Silvestre

    ()
    (Faculty of Economics, University of Barcelona)

  • María Dolores Gadea

    ()
    (Department of Applied Economics, University of Zaragoza)

Abstract

We show that the use of generalized least squares (GLS) detrending procedures leads to important empirical power gains compared to ordinary least squares (OLS) detrend- ing method when testing the null hypothesis of unit root for bounded processes. The non-centrality parameter that is used in the GLS-detrending depends on the bounds, so that improvements on the statistical inference are to be expected if a case-specific parameter is used. This initial hypothesis is supported by the simulation experiment that has been conducted.

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File URL: http://www.ub.edu/irea/working_papers/2013/201304.pdf
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Bibliographic Info

Paper provided by University of Barcelona, Regional Quantitative Analysis Group in its series AQR Working Papers with number 201302.

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Length: 16 pages
Date of creation: Apr 2013
Date of revision: Apr 2013
Handle: RePEc:aqr:wpaper:201302

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Related research

Keywords: Unit root; bounded process; quasi GLS-detrending. JEL classification: C12; C22;

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