IDEAS home Printed from https://ideas.repec.org/a/bla/obuest/v77y2015i4p495-511.html
   My bibliography  Save this article

On the Behaviour of Phillips–Perron Tests in the Presence of Persistent Cycles

Author

Listed:
  • Tomás Del Barrio Castro
  • Paulo M. M. Rodrigues
  • A. M. Robert Taylor

Abstract

type="main" xml:id="obes12091-abs-0001"> In this paper, we analyse the impact of persistent cycles on the well-known semi-parametric unit root tests of Phillips and Perron (1988, Biometrika, Vol. 75, pp. 335–346). It is shown, both analytically and through Monte Carlo simulations, that the presence of complex (near) unit roots can severely bias the size properties of these tests. Given the popularity of these tests with applied researchers and their routine presence in most econometric software packages, the results presented in this paper suggest that practitioners should treat the outcomes of these tests with some caution when applied to data which display a strong cyclical component.

Suggested Citation

  • Tomás Del Barrio Castro & Paulo M. M. Rodrigues & A. M. Robert Taylor, 2015. "On the Behaviour of Phillips–Perron Tests in the Presence of Persistent Cycles," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(4), pages 495-511, August.
    • Handle: RePEc:bla:obuest:v:77:y:2015:i:4:p:495-511
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/obes.2015.77.issue-4
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pierre Perron & Serena Ng, 1996. "Useful Modifications to some Unit Root Tests with Dependent Errors and their Local Asymptotic Properties," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(3), pages 435-463.
    2. Castro, Tomás del Barrio & Rodrigues, Paulo M.M. & Taylor, A.M. Robert, 2013. "The Impact Of Persistent Cycles On Zero Frequency Unit Root Tests," Econometric Theory, Cambridge University Press, vol. 29(6), pages 1289-1313, December.
    3. Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 631-653.
    4. Taylor, A M Robert, 2003. "Robust Stationarity Tests in Seasonal Time Series Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 156-163, January.
    5. Bierens, Herman J., 2001. "Complex Unit Roots And Business Cycles: Are They Real?," Econometric Theory, Cambridge University Press, vol. 17(5), pages 962-983, October.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    7. Perron, Pierre & Ng, Serena, 1998. "An Autoregressive Spectral Density Estimator At Frequency Zero For Nonstationarity Tests," Econometric Theory, Cambridge University Press, vol. 14(5), pages 560-603, October.
    8. Niels Haldrup & Peter Lildholdt, 2002. "On the Robustness of Unit Root Tests in the Presence of Double Unit Roots," Journal of Time Series Analysis, Wiley Blackwell, vol. 23(2), pages 155-171, March.
    9. Yoosoon Chang & Joon Park, 2002. "On The Asymptotics Of Adf Tests For Unit Roots," Econometric Reviews, Taylor & Francis Journals, vol. 21(4), pages 431-447.
    10. Nabeya, Seiji & Perron, Pierre, 1994. "Local asymptotic distribution related to the AR(1) model with dependent errors," Journal of Econometrics, Elsevier, vol. 62(2), pages 229-264, June.
    11. Haldrup, Niels Prof. & Lildholdt, Peter, 2000. "On the Robustness of Unit Root Tests in the Presence of Double Unit Roots," University of California at San Diego, Economics Working Paper Series qt2k0780sh, Department of Economics, UC San Diego.
    12. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    13. Donald S. Allen, 1997. "Filtering permanent cycles with complex unit roots," Working Papers 1997-001, Federal Reserve Bank of St. Louis.
    14. Jansson, Michael, 2002. "Consistent Covariance Matrix Estimation For Linear Processes," Econometric Theory, Cambridge University Press, vol. 18(6), pages 1449-1459, December.
    15. Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Unit Root Tests and Seasonally Adjusted Data
      by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2014-09-13 01:03:00

    Citations

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


    Cited by:

    1. Benedict Belobo Ateba & Johannes Jurgens Prinsloo, 2018. "The Electricity Security in South Africa: Analysing Significant Determinants to the Grid Reliability," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 70-79.
    2. Yii, Kwang-Jing & Tan, Chai-Thing & Ho, Wing-Ken & Kwan, Xiao-Hui & Nerissa, Feng-Ting Shim & Tan, Yan-Yi & Wong, Kar-Horn, 2022. "Land availability and housing price in China: Empirical evidence from nonlinear autoregressive distributed lag (NARDL)," Land Use Policy, Elsevier, vol. 113(C).
    3. Hwang, Jen-Te & Wen, Min, 2024. "Electronic payments and money demand in China," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 47-64.
    4. Koutmos, Dimitrios, 2019. "Asset pricing factors and bank CDS spreads," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 19-41.
    5. Dimitrios Koutmos, 2018. "Interdependencies between CDS spreads in the European Union: Is Greece the black sheep or black swan?," Annals of Operations Research, Springer, vol. 266(1), pages 441-498, July.
    6. Ricardo Quineche & Gabriel Rodríguez, 2017. "Selecting the Lag Length for the M GLS Unit Root Tests with Structural Change: A Warning Note for Practitioners Based on Simulations," Econometrics, MDPI, vol. 5(2), pages 1-10, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Castro, Tomás del Barrio & Rodrigues, Paulo M.M. & Taylor, A.M. Robert, 2013. "The Impact Of Persistent Cycles On Zero Frequency Unit Root Tests," Econometric Theory, Cambridge University Press, vol. 29(6), pages 1289-1313, December.
    2. Pierre Perron & Eduardo Zorita & Iliyan Georgiev & Paulo M. M. Rodrigues & A. M. Robert Taylor, 2017. "Unit Root Tests and Heavy-Tailed Innovations," Journal of Time Series Analysis, Wiley Blackwell, vol. 38(5), pages 733-768, September.
    3. Nikolaos Kourogenis & Nikitas Pittis, 2008. "Testing for a unit root under errors with just barely infinite variance," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(6), pages 1066-1087, November.
    4. Mehdi Hosseinkouchack & Uwe Hassler, 2016. "Powerful Unit Root Tests Free of Nuisance Parameters," Journal of Time Series Analysis, Wiley Blackwell, vol. 37(4), pages 533-554, July.
    5. Hirukawa, Masayuki, 2023. "Robust Covariance Matrix Estimation in Time Series: A Review," Econometrics and Statistics, Elsevier, vol. 27(C), pages 36-61.
    6. Niels Haldrup & Peter Lildholdt, 2002. "On the Robustness of Unit Root Tests in the Presence of Double Unit Roots," Journal of Time Series Analysis, Wiley Blackwell, vol. 23(2), pages 155-171, March.
    7. Helmut Herwartz & Florian Siedenburg, 2010. "A New Approach to Unit Root Testing," Computational Economics, Springer;Society for Computational Economics, vol. 36(4), pages 365-384, December.
    8. Cavaliere, Giuseppe & Taylor, A.M. Robert, 2007. "Testing for unit roots in time series models with non-stationary volatility," Journal of Econometrics, Elsevier, vol. 140(2), pages 919-947, October.
    9. 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.
    10. Niels Haldrup & Peter Lildholdt, 2005. "Local power functions of tests for double unit roots," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(2), pages 159-179, May.
    11. Michael Jansson & Marcelo J. Moreira, 2006. "Optimal Inference in Regression Models with Nearly Integrated Regressors," Econometrica, Econometric Society, vol. 74(3), pages 681-714, May.
    12. Zhijie Xiao & Luiz Renato Lima, 2007. "Testing Covariance Stationarity," Econometric Reviews, Taylor & Francis Journals, vol. 26(6), pages 643-667.
    13. Sánchez, Ismael, 2000. "Spectral density estimators at frequency zero for nonstationarity tests in arma models," DES - Working Papers. Statistics and Econometrics. WS 10132, Universidad Carlos III de Madrid. Departamento de Estadística.
    14. Niels Haldrup & Robinson Kruse & Timo Teräsvirta & Rasmus T. Varneskov, 2013. "Unit roots, non-linearities and structural breaks," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 4, pages 61-94, Edward Elgar Publishing.
    15. 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(3), pages 587-636, June.
    16. Ye Cai & Mototsugu Shintani, 2005. "On the Long-Run Variance Ratio Test for a Unit Root," Vanderbilt University Department of Economics Working Papers 0506, Vanderbilt University Department of Economics.
    17. David I. Harvey, & Stephen J. Leybourne, & A. M. Robert Taylor, 2007. "Testing for a unit root when uncertain about the trend [Revised to become 07/03 above]," Discussion Papers 06/03, University of Nottingham, Granger Centre for Time Series Econometrics.
    18. Gaowen Wang, 2017. "Modified Unit Root Tests with Nuisance Parameter Free Asymptotic Distributions," Methodology and Computing in Applied Probability, Springer, vol. 19(2), pages 519-538, June.
    19. Gabriel Rodriguez & Pierre Perron, 2013. "Single-equation tests for Cointegration with GLS Detrended Data," Boston University - Department of Economics - Working Papers Series 2013-016, Boston University - Department of Economics.
    20. Dionisio Ramirez & Gabriel Rodr¨ªguez, 2014. "Do Labor Reforms in Spain Have an Effect on the Equilibrium Unemployment Rate?," International Journal of Social Science Studies, Redfame publishing, vol. 2(1), pages 105-120, January.

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:77:y:2015:i:4:p:495-511. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sfeixuk.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.