The fragility of the KPSS stationarity test
Stationarity tests exhibit extreme size distortions if the observable process is stationary yet highly persistent. In this paper we provide a theoretical explanation for the size distortion of the KPSS test for DGPs with a broad range of first order autocorrelation coefficient. Considering a near-integrated, nearly stationary process we show that the asymptotic distribution of the test contains an additional term, which can potentially explain the amount of size distortion documented in previous simulation studies.
(This abstract was borrowed from another version of this item.)
Volume (Year): 19 (2010)
Issue (Month): 2 (June)
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