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Measurement errors and outliers in seasonal unit root testing

  • Haldrup, Niels
  • Montanes, Antonio
  • Sanso, Andreu

Frequently, seasonal and non-seasonal data (especially macro time series) are observed with noise. For instance, the time series can have irregular abrupt changes and interruptions following as a result of additive or temporary change outliers caused by external circumstances which are irrelevant for the series of interest. Equally, the time series can have measurement errors. In this paper we analyse the above types of data irregularities on the behaviour of seasonal unit roots. It occurs that in most cases outliers and measurement errors can seriously affect inference towards the rejection of seasonal unit roots. It is shown how the distortion of the tests will depend upon the frequency, magnitude, and persistence of the outliers as well as on the signal to noise ratio associated with measurement errors. Some solutions to the implied inference problems are suggested.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 127 (2005)
Issue (Month): 1 (July)
Pages: 103-128

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Handle: RePEc:eee:econom:v:127:y:2005:i:1:p:103-128
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