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Robust critical values for unit root tests for series with conditional heteroscedasticity errors: An application of the simple NoVaS transformation

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  • Mantalos, Panagiotis

    ()
    (Department of Business, Economics, Statistics and Informatics)

Abstract

In this paper, we introduce a set of critical values for unit root tests that are robust in the presence of conditional heteroscedasticity errors using the normalizing and variance-stabilizing transformation (NoVaS) in Politis (2007) and examine their properties using Monte Carlo methods. In terms of the size of the test, our analysis reveals that unit root tests with NoVaS-modified critical values have actual sizes close to the nominal size. For the power of the test, we find that unit root tests with NoVaS-modified critical values either have the same power as, or slightly better than, tests using conventional Dickey–Fuller critical values across the sample range considered.

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File URL: http://www.oru.se/PageFiles/36235/WP%202%202012.pdf
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Bibliographic Info

Paper provided by Örebro University, School of Business in its series Working Papers with number 2012:2.

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Length: 24 pages
Date of creation: 02 Feb 2012
Date of revision:
Handle: RePEc:hhs:oruesi:2012_002

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Postal: Örebro University School of Business, SE - 701 82 ÖREBRO, Sweden
Phone: 019-30 30 00
Fax: 019-33 25 46
Web page: http://www.oru.se/Institutioner/Handelshogskolan-vid-Orebro-universitet/
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Keywords: Critical values; normalizing and variance-stabilizing transformation; unit root tests;

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  1. Kim, Kiwhan & Schmidt, Peter, 1993. "Unit root tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 59(3), pages 287-300, October.
  2. MacKinnon, James G, 1992. "Model Specification Tests and Artificial Regressions," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 102-46, March.
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