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 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 are 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 Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt4v35s2gv.
Date of creation: 31 Jul 2002
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unit roots; power envelopes; structural vector autoregressions;
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.
- Graham Elliott & Michael Jansson, . "Testing for Unit Roots with Stationary Covariates," Economics Working Papers 2000-6, School of Economics and Management, University of Aarhus.
- C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
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- Robert G. King & Charles I. Plosser & James H. Stock & Mark W. Watson, 1992.
"Stochastic Trends and Economic Fluctuations,"
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- Caporale, Guglielmo Maria & Pittis, Nikitas, 1999. " Unit Root Testing Using Covariates: Some Theory and Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 583-95, November.
- Graham Elliott & Michael Jansson & Elena Pesavento, 2005.
"Optimal Power for Testing Potential Cointegrating Vectors With Known Parameters for Nonstationarity,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 23, pages 34-48, January.
- Graham Elliott & Michael Jansson & Elena Pesavento, 2003. "Optimal Power For Testing Potential Cointegrating Vectors with Known Parameters for Nonstationarity," Emory Economics 0303, Department of Economics, Emory University (Atlanta).
- Elliott, Graham, 1999.
"Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution,"
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Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-83, August.
- Tom Doan, . "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992.
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NBER Technical Working Papers
0130, National Bureau of Economic Research, Inc.
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