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The fragility of the KPSS stationarity test

  • Nunzio Cappuccio

    ()

  • Diego Lubian

    ()

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.

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File URL: http://hdl.handle.net/10.1007/s10260-010-0130-3
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Article provided by Springer in its journal Statistical Methods and Applications.

Volume (Year): 19 (2010)
Issue (Month): 2 (June)
Pages: 237-253

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Handle: RePEc:spr:stmapp:v:19:y:2010:i:2:p:237-253
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  1. Newey, Whitney K & West, Kenneth D, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Wiley Blackwell, vol. 61(4), pages 631-53, October.
  2. Markku Lanne & Pentti Saikkonen, 2003. "Reducing size distortions of parametric stationarity tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(4), pages 423-439, 07.
  3. Leybourne, S J & McCabe, B P M, 1994. "A Consistent Test for a Unit Root," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 157-66, April.
  4. Bart Hobijn & Philip Hans Franses & Marius Ooms, 2004. "Generalizations of the KPSS-test for stationarity," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 58(4), pages 483-502.
  5. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, vol. 60(4), pages 953-66, July.
  6. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  7. Nunzio Cappuccio & Diego Lubian, 2006. "Local Asymptotic Distributions of Stationarity Tests," Journal of Time Series Analysis, Wiley Blackwell, vol. 27(3), pages 323-345, 05.
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