Advanced Search
MyIDEAS: Login to save this paper or follow this series

Impact of Model Specification Decisions on Unit Root Tests

Contents:

Author Info

  • Atiq-ur-Rehman, Atiq-ur-Rehman
  • Zaman, Asad

Abstract

Performance of unit tests depends on several specification decisions prior to their application e.g., whether or not to include a deterministic trend. Since there is no standard procedure for making such decisions, therefore the practitioners routinely make several arbitrary specification decisions. In Monte Carlo studies, the design of DGP supports these decisions, but for real data, such specification decisions are often unjustifiable and sometimes incompatible with data. We argue that the problems posed by choice of initial specification are quite complex and the existing voluminous literature on this issue treats only certain superficial aspects of this choice. We also show how these initial specifications affect the performance of unit root tests and argue that Monte Carlo studies should include these preliminary decisions to arrive at a better yardstick for evaluating such tests.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/19963/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19963.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:pra:mprapa:19963

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: model specification; trend stationary; difference stationary;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers, Princeton, Department of Economics - Econometric Research Program 347, Princeton, Department of Economics - Econometric Research Program.
  2. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(3), pages 251-70, July.
  3. Gilberto A. Libanio, 2004. "Unit roots in macroeconomic time series: theory, implications, and evidence," Textos para Discussão Cedeplar-UFMG td228, Cedeplar, Universidade Federal de Minas Gerais.
  4. Giuseppe Cavaliere, 2005. "Unit Root Tests under Time-Varying Variances," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 23(3), pages 259-292.
  5. 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.
  6. Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(3), pages 271-87, July.
  7. Nelson, C-R & Murray, C-J, 1997. "The Uncertain Trend in U.S. GDP," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 97-05, Department of Economics at the University of Washington.
  8. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(2), pages 139-162.
  9. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers, Queen's University, Department of Economics 1227, Queen's University, Department of Economics.
  10. Nelson, Charles R & Kang, Heejoon, 1984. "Pitfalls in the Use of Time as an Explanatory Variable in Regression," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 2(1), pages 73-82, January.
  11. Diebold, Francis X & Senhadji, Abdelhak S, 1996. "The Uncertain Unit Root in Real GNP: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1291-98, December.
  12. Hacker, Scott & Hatemi-J, Abdulnasser, 2010. "The Properties of Procedures Dealing with Uncertainty about Intercept and Deterministic Trend in Unit Root Testing," Working Paper Series in Economics and Institutions of Innovation, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies 214, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  13. Atiq-ur-Rehman, Atiq-ur-Rehman & Zaman, Asad, 2009. "Impact of Model Specification Decisions on Unit Root Tests," MPRA Paper 19963, University Library of Munich, Germany.
  14. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 49(4), pages 1057-72, June.
  15. 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, Boston College Department of Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  16. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 10(3), pages 237-50, July.
  17. Perron, P., 1986. "Trends and Random Walks in Macroeconomic Time Series: Further Evidence From a New Approach," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8650, Universite de Montreal, Departement de sciences economiques.
  18. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc.
  19. Kim, Tae-Hwan & Leybourne, Stephen & Newbold, Paul, 2002. "Unit root tests with a break in innovation variance," Journal of Econometrics, Elsevier, Elsevier, vol. 109(2), pages 365-387, August.
  20. Rudebusch, Glenn D, 1993. "The Uncertain Unit Root in Real GNP," American Economic Review, American Economic Association, American Economic Association, vol. 83(1), pages 264-72, March.
  21. John Elder & Peter E. Kennedy, 2001. "Testing for Unit Roots: What Should Students Be Taught?," The Journal of Economic Education, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(2), pages 137-146, January.
  22. David H Papell & Ruxandra Prodan, 2007. "Restricted Structural Change And The Unit Root Hypothesis," Economic Inquiry, Western Economic Association International, vol. 45(4), pages 834-853, October.
  23. Mark W. Watson, 1999. "Explaining the increased variability in long-term interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Fall, pages 71-96.
  24. Kilian, L. & Ohanian, L.E., 1999. "Unit Roots, Trend Breaks and Transitory Dynamics: A Macroeconomic Perspective," Papers, Michigan - Center for Research on Economic & Social Theory 99-02, Michigan - Center for Research on Economic & Social Theory.
  25. Nunes, Luis C. & Kuan, Chung-Ming & Newbold, Paul, 1995. "Spurious Break," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 11(04), pages 736-749, August.
  26. Elena Andreou & Aris Spanos, 2003. "Statistical Adequacy and the Testing of Trend Versus Difference Stationarity," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 22(3), pages 217-237.
  27. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1361-1401, November.
  28. Cati, Regina Celia & Garcia, Marcio G P & Perron, Pierre, 1999. "Unit Roots in the Presence of Abrupt Governmental Interventions with an Application to Brazilian Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(1), pages 27-56, Jan.-Feb..
  29. Ayat, L. & Burridge, P., 1996. "Unit Root Tests in the presence of Uncertainty about the Non-Stochastic Trends," Discussion Papers, Department of Economics, University of Birmingham 96-28, Department of Economics, University of Birmingham.
  30. Engle, R. F. & Granger, C. W. J. (ed.), 1991. "Long-Run Economic Relationships: Readings in Cointegration," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198283393, October.
  31. Pagan, Adrian R. & Schwert, G. William, 1990. "Testing for covariance stationarity in stock market data," Economics Letters, Elsevier, Elsevier, vol. 33(2), pages 165-170, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Atiq-ur-Rehman, Atiq-ur-Rehman & Zaman, Asad, 2009. "Impact of Model Specification Decisions on Unit Root Tests," MPRA Paper 19963, University Library of Munich, Germany.
  2. Zaman, Asad, 2012. "Methodological mistakes and econometric consequences," MPRA Paper 41032, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:19963. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.