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Monte Carlo Test for Stochastic Trend in Space State Models for the Location-Scale Family

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  • Silva, Ivair Ramos
  • Ernesto, Dulcidia
  • Oliveira, Fernando
  • Marques, Reinaldo
  • Oliveira, Anderson

Abstract

In space state models for time series, a key point is the decision between modeling the trend of non-stationary processes through a deterministic or a stochastic term. The present paper introduces a Monte Carlo hypothesis test procedure to guide in such a decision. The method works for any time series distribution belonging to the location-scale family. The proposed method provides an alpha-level test for any time series of length greater than 3 and it does not demand assumptions on the distribution of the trend term when it is actually stochastic.

Suggested Citation

  • Silva, Ivair Ramos & Ernesto, Dulcidia & Oliveira, Fernando & Marques, Reinaldo & Oliveira, Anderson, 2021. "Monte Carlo Test for Stochastic Trend in Space State Models for the Location-Scale Family," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 40(2), April.
    • Handle: RePEc:sbe:breart:v:40:y:2021:i:2:a:81082
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