A Simple Modification to Improve the Finite Sample Properties of Ng and Perron’s Unit Root Tests
AbstractThe tests introduced by Ng and Perron (2001, Econometrica) have the drawback that for non-local alternatives the power can be very small. The aim of this note is to point out an easy solution to this power reversal problem, which in addition leads to tests having an exact size even closer to nominal size. It involves using OLS instead of GLS detrended data when constructing the modified information criterion.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-010.
Date of creation: Feb 2006
Date of revision:
Other versions of this item:
- Perron, Pierre & Qu, Zhongjun, 2007. "A simple modification to improve the finite sample properties of Ng and Perron's unit root tests," Economics Letters, Elsevier, vol. 94(1), pages 12-19, January.
- NEP-ALL-2006-05-06 (All new papers)
- NEP-CBA-2006-05-06 (Central Banking)
- NEP-ECM-2006-05-06 (Econometrics)
- NEP-ETS-2006-05-06 (Econometric Time Series)
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