The Fragility of the KPSS Stationarity Test
AbstractStationarity tests exhibit extreme size distortions if the observable process is stationary yet highly persistent. In this paper we provide a theoretical explanation for the size distortion of the KPSS test for DGPs with a broad range of first order autocorrelation coefficient. Considering a near-integrated, nearly stationary process we show that the asymptotic distribution of the test contains an additional term, which can potentially explain the amount of size distortion documented in previous simulation studies.
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Bibliographic InfoPaper provided by University of Verona, Department of Economics in its series Working Papers with number 67/2009.
Date of creation: Dec 2009
Date of revision:
KPSS stationarity test; size distortion; nearly white noise nearly integrated model;
Other versions of this item:
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-10 (All new papers)
- NEP-ECM-2010-01-10 (Econometrics)
- NEP-ETS-2010-01-10 (Econometric Time Series)
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