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Modified fast double sieve bootstraps for ADF tests

  • Richard, Patrick

This paper studies the finite sample performance of the sieve bootstrap augmented Dickey-Fuller (ADF) unit root test. It is well known that this test's accuracy in terms of rejection probability under the null depends greatly on the underlying DGP. Through extensive simulations, we find that it also depends on the number of lags employed in the bootstrap DGP and in the bootstrap ADF regression. Based on this finding and using some well established theoretical results, we propose a simple modification that significantly improves the test's accuracy. We also introduce different versions of the fast double bootstrap, each modified according to the same theoretical basis. According to our simulations, these new testing procedures have lower error in rejection probability under the null while retaining good power.

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File URL: http://www.sciencedirect.com/science/article/B6V8V-4WRD3DS-2/2/00650b49c635d5b244c10d7d7879d7e1
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Article provided by Elsevier in its journal Computational Statistics & Data Analysis.

Volume (Year): 53 (2009)
Issue (Month): 12 (October)
Pages: 4490-4499

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Handle: RePEc:eee:csdana:v:53:y:2009:i:12:p:4490-4499
Contact details of provider: Web page: http://www.elsevier.com/locate/csda

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  1. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
  2. Galbraith, JohnW. & Zinde-Walsh, Victoria, 1999. "On the distributions of Augmented Dickey-Fuller statistics in processes with moving average components," Journal of Econometrics, Elsevier, vol. 93(1), pages 25-47, November.
  3. Paparoditis, Efstathios & Politis, Dimitris N., 2005. "Bootstrapping Unit Root Tests for Autoregressive Time Series," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 545-553, June.
  4. Russell Davidson & James G. MacKinnon, 2006. "Improving the Reliability of Bootstrap Tests with the Fast Double Bootstrap," Working Papers 1044, Queen's University, Department of Economics.
  5. Park, Joon Y., 2002. "An Invariance Principle For Sieve Bootstrap In Time Series," Econometric Theory, Cambridge University Press, vol. 18(02), pages 469-490, April.
  6. 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.
  7. James G. MacKinnon, 2006. "Applications of the Fast Double Bootstrap," Working Papers 1023, Queen's University, Department of Economics.
  8. Patrick Richard, 2007. "ARMA Sieve bootstrap unit root tests," Cahiers de recherche 07-05, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke, revised Jul 2009.
  9. Palm, Franz C. & Smeekes, Stephan & Urbain, Jean-Pierre, 2006. "Bootstrap Unit Root Tests: Comparison and Extensions," Research Memorandum 015, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  10. Joon Y. Park, 2000. "Bootstrap Unit Root Tests," Econometric Society World Congress 2000 Contributed Papers 1587, Econometric Society.
  11. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  12. Yoosoon Chang & Joon Y. Park, 2003. "A Sieve Bootstrap For The Test Of A Unit Root," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(4), pages 379-400, 07.
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