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“GLS based unit root tests for bounded processes”

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Author Info

  • Josep Lluís Carrion-i-Silvestre

    ()
    (Faculty of Economics, University of Barcelona)

  • María Dolores Gadea

    ()
    (Department of Applied Economics, University of Zaragoza)

Abstract

We show that the use of generalized least squares (GLS) detrending procedures leads to important empirical power gains compared to ordinary least squares (OLS) detrend- ing method when testing the null hypothesis of unit root for bounded processes. The non-centrality parameter that is used in the GLS-detrending depends on the bounds, so that improvements on the statistical inference are to be expected if a case-specific parameter is used. This initial hypothesis is supported by the simulation experiment that has been conducted.

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File URL: http://www.ub.edu/irea/working_papers/2013/201304.pdf
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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201304.

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Length: 16 pages
Date of creation: Apr 2013
Date of revision: Apr 2013
Handle: RePEc:ira:wpaper:201304

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Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Related research

Keywords: Unit root; bounded process; quasi GLS-detrending. JEL classification: C12; C22;

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References

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  1. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  2. repec:att:wimass:9220 is not listed on IDEAS
  3. Kenneth D. West & Whitney K. Newey, 1995. "Automatic Lag Selection in Covariance Matrix Estimation," NBER Technical Working Papers 0144, National Bureau of Economic Research, Inc.
  4. Cavaliere, Giuseppe, 2005. "Limited Time Series With A Unit Root," Econometric Theory, Cambridge University Press, vol. 21(05), pages 907-945, October.
  5. PERRON, Pierre & RODRIGUEZ, Gabriel, 1998. "GLS Detrending, Efficient Unit Root Tests and Structural Change," Cahiers de recherche 9809, Universite de Montreal, Departement de sciences economiques.
  6. Perron, Pierre & Qu, Zhongjun, 2007. "A simple modification to improve the finite sample properties of Ng and Perron's unit root tests," Economics Letters, Elsevier, vol. 94(1), pages 12-19, January.
  7. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
  8. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Calzada, Joan & Martínez-Santos, Fernando, 2014. "Broadband prices in the European Union: Competition and commercial strategies," Information Economics and Policy, Elsevier, vol. 27(C), pages 24-38.
  2. Manuela Alcañiz & Montserrat Guillén & Daniel Sánchez-Moscona & Miguel Santolino & Oscar Llatje & Lluís Ramon, 2013. "“Prevalence of alcohol-impaired drivers based on random breath tests in a roadside survey”," IREA Working Papers 201313, University of Barcelona, Research Institute of Applied Economics, revised Jul 2013.

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