Testing unit root based on partially adaptive estimation
AbstractThis paper proposes unit root tests based on partially adaptive estimation. The proposed tests provide an intermediate class of inference procedures that are more efficient than the traditional OLS-based methods and simpler than unit root tests based on fully adaptive estimation using nonparametric methods. The limiting distribution of the proposed test is a combination of standard normal and the traditional Dickey-Fuller (DF) distribution, including the traditional ADF test as a special case when using Gaussian density. Taking into account the well documented characteristic of heavy-tail behavior in economic and financial data, we consider unit root tests coupled with a class of partially adaptive M-estimators based on the student-t distributions, which includes the normal distribution as a limiting case. Monte Carlo Experiments indicate that, in the presence of heavy tail distributions or innovations that are contaminated by outliers, the proposed test is more powerful than the traditional ADF test.
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Bibliographic InfoPaper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 528.
Date of creation: 01 Mar 2004
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Other versions of this item:
- Lima Luiz Renato & Xiao Zhijie, 2010. "Testing Unit Root Based on Partially Adaptive Estimation," Journal of Time Series Econometrics, De Gruyter, vol. 2(1), pages 1-34, June.
- Luiz Renato Lima & Zhijie Xiao, 2004. "Testing Unit Root Based on Partially Adaptive Estimation," Econometric Society 2004 Latin American Meetings 63, Econometric Society.
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-02 (All new papers)
- NEP-ECM-2004-06-09 (Econometrics)
- NEP-ETS-2004-06-02 (Econometric Time Series)
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