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Nearly Optimal Test For Long-Run Predictability With Nearly Integrated Regressors

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  • Sizova, Natalia

Abstract

We develop a method for long-run predictability testing in series Y by a persistent series X. We consider a class of tests based on the long-run behavior of these series that are robust to short-run dynamics and attempt to attain the highest possible power. The test is based on the Whittle approximation to the likelihood ratio that is adjusted to remain accurate across a range of persistence in X. We verify the properties of this test in small simulations and compare this test against a group of recently proposed methods.

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  • Sizova, Natalia, 2021. "Nearly Optimal Test For Long-Run Predictability With Nearly Integrated Regressors," Econometric Theory, Cambridge University Press, vol. 37(1), pages 82-137, February.
    • Handle: RePEc:cup:etheor:v:37:y:2021:i:1:p:82-137_3
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