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A Simple Modification to Improve the Finite Sample Properties of Ng and Perron’s Unit Root Tests

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Author Info
Pierre Perron () (Department of Economics, Boston University)
Zhongjun Qu () (University of Illinois at Urbana-Champaign)

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Abstract

The 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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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-010.

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Length: 10pages
Date of creation: Feb 2006
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Handle: RePEc:bos:wpaper:wp2006-010

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  1. Niels Haldrup & Michael Jansson, 2005. "Improving Size and Power in Unit Root Testing," Economics Working Papers 2005-2, School of Economics and Management, University of Aarhus. [Downloadable!]
  2. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July. [Downloadable!] (restricted)
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  1. Josep Lluís Carrion-i-Silvestre & Dukpa Kim & Pierre Perron, 2007. "GLS-based unit root tests with multiple structural breaks both under the null and the alternative hypotheses," Boston University - Department of Economics - Working Papers Series wp2008-019, Boston University - Department of Economics. [Downloadable!]
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