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Powerful Trend Function Tests That are Robust to Strong Serial Correlation with an Application to the Prebisch Singer Hypothesis

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Author Info
Helle Bunzel (Iowa State University)
Timothy Vogelsang (Cornell University)

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Abstract

In this paper we propose tests for hypothesis regarding the parameters of a the deterministic trend function of a univariate time series. The tests do not require knowledge of the form of serial correlation in the data and they are robust to strong serial correlation. The data can contain a unit root and the tests still have the correct size asymptotically. The tests we analyze are standard heteroskedasticity autocorrelation (HAC) robust tests based on nonparametric kernel variance estimators. We analyze these tests using the small-b asymptotic framework recently proposed by Kiefer and Vogelsang (2002). This analysis allows us to analyze the power properties of the tests with regards to bandwidth and kernel choices. Our analysis shows that among popular kernels, there are specific kernel and bandwidth choices that deliver tests with maximal power within a specific class of tests. We apply the recommended tests to the logarithm of a net barter terms of trade series and we find that this series has a statistically significant negative slope. This finding is consistent with the well known Prebisch-Singer hypothesis. Because our tests are robust to strong serial correlation or a unit root in the data, our results in support of the Prebisch-Singer hypothesis are relatively strong.

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Paper provided by EconWPA in its series Econometrics with number 0304002.

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Length: 34 pages
Date of creation: 23 Apr 2003
Date of revision:
Handle: RePEc:wpa:wuwpem:0304002

Note: Type of Document - Tex; prepared on IBM PC ; to print on PostScript; pages: 34; figures: included
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Related research
Keywords: Estimator; Fixed-b Asymptotics; Power Envelope; Unit Root; Nearly Integrated; Partial Sum; Deterministic Trend; Linear Trend.;

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions

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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.:
  1. Peter C.B. Phillips & Victor Solo, 1989. "Asymptotics for Linear Processes," Cowles Foundation Discussion Papers 932, Cowles Foundation, Yale University. [Downloadable!]
  2. Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005. "A New Asymptotic Theory For Heteroskedasticity-Autocorrelation Robust Tests," Econometric Theory, Cambridge University Press, vol. 21(06), pages 1130-1164, December. [Downloadable!]
    Other versions:
  3. Powell, Andrew, 1991. "Commodity and Developing Country Terms of Trade: What Does the Long Run Show?," Economic Journal, Royal Economic Society, vol. 101(409), pages 1485-96, November. [Downloadable!] (restricted)
    Other versions:
  4. Ardeni, Pier Giorgio & Wright, Brian, 1992. "The Prebisch-Singer Hypothesis: A Reappraisal Independent of Stationarity Hypotheses," Economic Journal, Royal Economic Society, vol. 102(413), pages 803-12, July. [Downloadable!] (restricted)
  5. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March. [Downloadable!] (restricted)
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  6. Spraos, John, 1980. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures," Economic Journal, Royal Economic Society, vol. 90(357), pages 107-28, March. [Downloadable!] (restricted)
  7. Lutz, Matthias G, 1999. "A General Test of the Prebisch-Singer Hypothesis," Review of Development Economics, Blackwell Publishing, vol. 3(1), pages 44-57, February. [Downloadable!] (restricted)
  8. Sapsford, D, 1985. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures: A Comment and Some Additional Evidence," Economic Journal, Royal Economic Society, vol. 95(379), pages 781-88, September. [Downloadable!] (restricted)
  9. Cuddington, John T & Urzua, Carlos M, 1989. "Trends and Cycles in the Net Barter Terms of Trade: A New Approach," Economic Journal, Royal Economic Society, vol. 99(396), pages 426-42, June. [Downloadable!] (restricted)
  10. Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
  11. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Ozgen Sayginsoy, 2004. "Powerful and Serial Correlation Robust Tests of the Economic Convergence Hypothesis," Discussion Papers 04-07, University at Albany, SUNY, Department of Economics. [Downloadable!]
  2. Ozgen Sayginsoy & Tim Vogelsang, 2004. "Powerful Tests of Structural Change That are Robust to Strong Serial Correlation," Discussion Papers 04-08, University at Albany, SUNY, Department of Economics. [Downloadable!]
  3. Hashimzade, Nigar & Vogelsang, Timothy, 2006. "Fixed-b Asymptotic Approximation of the Sampling Behavior of Nonparametric Spectral Density Estimators," Working Papers 06-04, Cornell University, Center for Analytic Economics. [Downloadable!]
    Other versions:
  4. Pierre Perron & Tomoyoshi Yabu, . "Estimating Deterministic Trends with an Integrated or Stationary Noise Component," Boston University - Department of Economics - Working Papers Series WP2006-012, Boston University - Department of Economics, revised Feb 2006. [Downloadable!]
    Other versions:
  5. Patrick Marsh, . "The Available Information for Invariant Tests of a Unit Root," Discussion Papers 05/03, Department of Economics, University of York. [Downloadable!]
  6. Fabio Busetti & Andrew Harvey, 2007. "Testing for trend," Temi di discussione (Economic working papers) 614, Bank of Italy, Economic Research Department. [Downloadable!]
    Other versions:
  7. Ozgen Sayginsoy, 2005. "Powerful and Serial Correlation Robust Tests of the Economic Convergence Hypothesis," Econometrics 0503014, EconWPA, revised 11 Mar 2005. [Downloadable!]
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