Advanced Search
MyIDEAS: Login

Testing against stochastic trend and seasonality in the presence of unattended breaks and unit roots

Contents:

Author Info

  • Fabio Busetti

    ()
    (Banca d'Italia)

  • A. M. Robert Taylor

    ()
    (University of Birmingham, Department of Economics)

Abstract

This paper considers the problem of testing against stochastic trend and seasonality in the presence of structural breaks and unit roots at frequencies other than those directly under test, which we term unattended breaks and unattended unit roots respectively. We show that under unattended breaks the true size of the Kwiatkowski et. al. (1992) [KPSS] test at frequency zero and the Canova and Hansen (1995) [CH] test at the seasonal frequencies fall well below the nominal level under the null with an associated, often very dramatic, loss of power under the alternative. We demonstrate that a simple modification of the statistics can recover the usual limiting distribution appropriate to the case where there are no breaks, provided unit roots do not exist at any of the unattended frequencies. Where unattended unit roots occur we show that the above statistics converge in probability to zero under the null. However, computing the KPSS and CH statistics after pre-filtering the data is simultaneously efficacious against both unattended breaks and unattended unit roots, in the sense that the statistics retain their usual pivotal limiting null distributions appropriate to the case where neither occurs. The case where breaks may potentially occur at all frequencies is also discussed. The practical relevance of the theoretical contribution of the paper is illustrated through a number of empirical examples.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td03/td470_03/td470/tema_470_03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 470.

as in new window
Length:
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:bdi:wptemi:td_470_03

Contact details of provider:
Postal: Via Nazionale, 91 - 00184 Roma
Web page: http://www.bancaditalia.it
More information through EDIRC

Related research

Keywords: stationarity tests; structural breaks; pre-filtering; unattended unit roots;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
  2. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  3. Canova, Fabio & Hansen, Bruce E, 1995. "Are Seasonal Patterns Constant over Time? A Test for Seasonal Stability," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 237-52, July.
  4. Nyblom, Jukka & Harvey, Andrew, 1999. "Tests of Common Stochastic Trends," Cambridge Working Papers in Economics 9902, Faculty of Economics, University of Cambridge.
  5. Hannan, E J & Terrell, R D & Tuckwell, N E, 1970. "The Seasonal Adjustment of Economic Time Series," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(1), pages 24-52, February.
  6. Hyllerberg, S. & Engle, R.F. & Granger, C.W.J. & Yoo, B.S., 1988. "Seasonal Integration And Cointegration," Papers 0-88-2, Pennsylvania State - Department of Economics.
  7. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  8. Fabio Busetti & Andrew Harvey, 2003. "Further Comments On Stationarity Tests In Series With Structural Breaks At Unknown Points," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(2), pages 137-140, 03.
  9. Smith, Jeremy & Otero, Jesus, 1997. "Structural breaks and seasonal integration," Economics Letters, Elsevier, vol. 56(1), pages 13-19, September.
  10. Philip Hans Franses & Timothy J. Vogelsang, 1998. "On Seasonal Cycles, Unit Roots, And Mean Shifts," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 231-240, May.
  11. Taylor, A M Robert, 2003. "Robust Stationarity Tests in Seasonal Time Series Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 156-63, January.
  12. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  13. Harvey, Andrew, 2001. "Testing in Unobserved Components Models," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 20(1), pages 1-19, January.
  14. Jushan Bai, 1997. "Estimation Of A Change Point In Multiple Regression Models," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 551-563, November.
  15. Elliott, Graham & Stock, James H., 1994. "Inference in Time Series Regression When the Order of Integration of a Regressor is Unknown," Econometric Theory, Cambridge University Press, vol. 10(3-4), pages 672-700, August.
  16. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  17. Hylleberg, Svend, 1995. "Tests for seasonal unit roots general to specific or specific to general?," Journal of Econometrics, Elsevier, vol. 69(1), pages 5-25, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Wang, Dabin & Tomek, William G., 2004. "Commodity Prices And Unit Root Tests," Working Papers 127145, Cornell University, Department of Applied Economics and Management.
  2. Fabio Busetti & Silvia Fabiani & Andrew Harvey, 2006. "Convergences of prices and rates of inflation," Temi di discussione (Economic working papers) 575, Bank of Italy, Economic Research and International Relations Area.
  3. Su, Chi-Wei & Tsangyao, Chang & Chang, Hsu-Ling, 2011. "Purchasing power parity for fifteen Latin American countries: Stationary test with a Fourier function," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 839-845, October.
  4. Fok, D. & Franses, Ph.H.B.F. & Paap, R., 2005. "Performance of Seasonal Adjustment Procedures: Simulation and Empirical Results," Econometric Institute Research Papers EI 2005-30, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  5. Wang, Dabin & Tomek, William G., 2004. "Commodity Prices And Unit Root Tests," 2004 Annual meeting, August 1-4, Denver, CO 20141, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_470_03. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.