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Feedback covariates unit root tests : an application to the sustainability of fiscal policy Author info | Abstract | Publisher info | Download info | Related research | Statistics Fève, Patrick
Hénin, Pierre-Yves
Jolivaldt, Philippe
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Sustainability tests often ignore the joint dynamics of stock and flow variables. This paper shows that such a practice leads to inappropriate statistical inference, and that taking into account this joint dynamics when testing for unit root induces large power gains. This paper introduces a new statistics denoted FADF (Feedback augmented Dickey Fuller), which fully combines feedback effects and covariates. The paper derives the limit distribution of the test statistic and comments on the asymptotic power functions. A simulation study and an empirical application based on US public debt sustainability illustrate the potential of this approach.
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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Couverture Orange) with number
9810.
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Length: 36 pages
Date of creation: 1998Date of revision:
Handle: RePEc:cpm:cepmap:9810Contact details of provider: Web page: http://www.cepremap.cnrs.fr
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Keywords: Find related papers by JEL classification: C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
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