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Nearly Efficient Likelihood Ratio Tests of the Unit Root Hypothesis

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  • Michael Jansson

    ()
    (UC Berkeley and CREATES)

  • Morten Ørregaard Nielsen

    ()
    (Queen's University and CREATES)

Abstract

Seemingly absent from the arsenal of currently available "nearly efficient" testing procedures for the unit root hypothesis, i.e. tests whose asymptotic local power functions are virtually indistinguishable from the Gaussian power envelope, is a test admitting a (quasi-)likelihood ratio interpretation. We study the large sample properties of a quasi-likelihood ratio unit root test based on a Gaussian likelihood and show that this test is nearly efficient.

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1213.

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Length: 16 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:qed:wpaper:1213

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Keywords: Efficiency; likelihood ratio test; unit root hypothesis;

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References

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  1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  2. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
  4. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  5. Michael Jansson, 2007. "Semiparametric Power Envelopes for Tests of the Unit Root Hypothesis," CREATES Research Papers 2007-12, School of Economics and Management, University of Aarhus.
  6. 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.
  7. Peter C.B. Phillips & Zhijie Xiao, 1998. "A Primer on Unit Root Testing," Cowles Foundation Discussion Papers 1189, Cowles Foundation for Research in Economics, Yale University.
  8. Harvey, David I. & Leybourne, Stephen J. & Taylor, A.M. Robert, 2009. "Unit Root Testing In Practice: Dealing With Uncertainty Over The Trend And Initial Condition," Econometric Theory, Cambridge University Press, vol. 25(03), pages 587-636, June.
  9. Ulrich K. M¸ller & Graham Elliott, 2003. "Tests for Unit Roots and the Initial Condition," Econometrica, Econometric Society, vol. 71(4), pages 1269-1286, 07.
  10. 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.
  11. repec:cup:cbooks:9780521496032 is not listed on IDEAS
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Cited by:
  1. H. Peter Boswijk & Michael Jansson & Morten �. Nielsen, 2012. "Improved Likelihood Ratio Tests for Cointegration Rank in the VAR Model," Tinbergen Institute Discussion Papers 12-097/III, Tinbergen Institute.
  2. Maggie E.C. Jones & Morten Ørregaard Nielsen & Michal Ksawery Popiel, 2014. "A fractionally cointegrated VAR analysis of economic voting and political support," Working Papers 1326, Queen's University, Department of Economics.
  3. Christensen, Bent Jesper & Kruse, Robinson & Sibbertsen, Philipp, 2013. "A unified framework for testing in the linear regression model under unknown order of fractional integration," Hannover Economic Papers (HEP) dp-519, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  4. Joakim Westerlund, . "On the Asymptotic Distribution of the DF–GLS Test Statistic," Financial Econometics Series 2014_03, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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