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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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  1. Giuseppe Cavaliere, 2003. "Limited time series with a unit root," Quaderni di Dipartimento 1, Department of Statistics, University of Bologna.
  2. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
  3. 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.
  4. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  5. 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.
  6. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  7. 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.
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