Testing Unit Root Based on Partially Adaptive Estimation
This paper proposes unit root tests based on partially adaptive estimation. The proposed tests provide an intermediate class of inference procedures that are more efficient than the traditional OLS-based methods and simpler than unit root tests based on fully adaptive estimation using nonparametric methods. Taking into account the well documented characteristic of heavy-tail behavior in economic and financial data, we consider unit root tests coupled with a class of partially adaptive M-estimators based on the student-t distributions, which includes the normal distribution as a limiting case. Monte Carlo experiments indicate that, in the presence of heavy tail distributions, the proposed test is more powerful than the traditional ADF test. We apply the proposed test to several macroeconomic time series that have heavy-tailed distributions. The unit root hypothesis is rejected in U.S. real GNP, supporting the literature of transitory shocks in output. However, evidence against unit root is not found in real exchange rate and nominal interest rate even when heavy-tail is taken into account.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 2 (2010)
Issue (Month): 1 (June)
|Contact details of provider:|| Web page: https://www.degruyter.com|
|Order Information:||Web: https://www.degruyter.com/view/j/jtse|
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.:
- Balke, Nathan S & Fomby, Thomas B, 1994.
"Large Shocks, Small Shocks, and Economic Fluctuations: Outliers in Macroeconomic Time Series,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 9(2), pages 181-200, April-Jun.
- Balke, Nathan S. & Fomby, Thomas B., 1991. "Large shocks, small shocks, and economic fluctuations: outliers in macroeconomic times series," Working Papers 9101, Federal Reserve Bank of Dallas.
- 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.
- Peter C. B. Phillips & Zhijie Xiao, 1998. "A Primer on Unit Root Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 423-470, December.
- Phillips, Peter C B & Xiao, Zhijie, 1998. " A Primer on Unit Root Testing," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 423-469, December.
- Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1.
- John Y. Campbell & N. Gregory Mankiw, 1987.
"Are Output Fluctuations Transitory?,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 102(4), pages 857-880.
- Campbell, John & Mankiw, Gregory, 1987. "Are Output Fluctuations Transitory?," Scholarly Articles 3122545, Harvard University Department of Economics.
- John Y. Campbell & N. Gregory Mankiw, 1986. "Are Output Fluctuations Transitory?," NBER Working Papers 1916, National Bureau of Economic Research, Inc.
- Gamini Premaratne, 2005. "A Test for Symmetry with Leptokurtic Financial Data," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(2), pages 169-187.
- Potscher, Benedikt M. & Prucha, Ingmar R., 1986. "A class of partially adaptive one-step m-estimators for the non-linear regression model with dependent observations," Journal of Econometrics, Elsevier, vol. 32(2), pages 219-251, July.
- Rothenberg, Thomas J. & Stock, James H., 1997. "Inference in a nearly integrated autoregressive model with nonnormal innovations," Journal of Econometrics, Elsevier, vol. 80(2), pages 269-286, October.
- Lucas, Andre, 1995. "An outlier robust unit root test with an application to the extended Nelson-Plosser data," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 153-173.
- Phillips, Peter C.B., 1995.
"Robust Nonstationary Regression,"
Cambridge University Press, vol. 11(05), pages 912-951, October.
- Lucas, André, 1995. "Unit Root Tests Based on M Estimators," Econometric Theory, Cambridge University Press, vol. 11(02), pages 331-346, February.
- White, Halbert & Domowitz, Ian, 1984. "Nonlinear Regression with Dependent Observations," Econometrica, Econometric Society, vol. 52(1), pages 143-161, January.
- Knight, Keith, 1991. "Limit Theory for M-Estimates in an Integrated Infinite Variance," Econometric Theory, Cambridge University Press, vol. 7(02), pages 200-212, June.
- Xiao, Zhijie, 2001. "Likelihood-Based Inference In Trending Time Series With A Root Near Unity," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1082-1112, December.
- Cheung, Yin-Wong & Lai, Kon S., 1997. "Bandwidth Selection, Prewhitening, and the Power of the Phillips-Perron Test," Econometric Theory, Cambridge University Press, vol. 13(05), pages 679-691, October.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
When requesting a correction, please mention this item's handle: RePEc:bpj:jtsmet:v:2:y:2010:i:1:n:2. 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: (Peter Golla)
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.