IDEAS home Printed from https://ideas.repec.org/a/zbw/ifweej/201421.html
   My bibliography  Save this article

Testing for near I(2) trends when the signal-to-noise ratio is small

Author

Listed:
  • Juselius, Katarina

Abstract

Researchers seldom find evidence of I(2) in exchange rates, prices, and other macroeconomics time series when they test the order of integration using univariate Dickey-Fuller tests. In contrast, when using the multivariate ML trace test they frequently find double unit roots in the data. The paper demonstrates by simulations that this often happens when the signal-to-noise ratio is small

Suggested Citation

  • Juselius, Katarina, 2014. "Testing for near I(2) trends when the signal-to-noise ratio is small," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-30.
  • Handle: RePEc:zbw:ifweej:201421
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2014-21
    Download Restriction: no

    File URL: https://www.econstor.eu/bitstream/10419/97646/1/786305002.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Engel, Charles, 1994. "Can the Markov switching model forecast exchange rates?," Journal of International Economics, Elsevier, vol. 36(1-2), pages 151-165, February.
    2. Luca Fanelli & Emanuele Bacchiocchi, 2005. "Testing the purchasing power parity through I(2) cointegration techniques," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(6), pages 749-770.
    3. Juselius, Katarina, 1995. "Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model," Journal of Econometrics, Elsevier, vol. 69(1), pages 211-240, September.
    4. Cheung, Yin-Wong & Lai, Kon S. & Bergman, Michael, 2004. "Dissecting the PPP puzzle: the unconventional roles of nominal exchange rate and price adjustments," Journal of International Economics, Elsevier, vol. 64(1), pages 135-150, October.
    5. Cheung, Yin-Wong & Erlandsson, Ulf G., 2005. "Exchange Rates and Markov Switching Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 314-320, July.
    6. Franchi, Massimo & Jusélius, Katarina, 2007. "Taking a DSGE Model to the Data Meaningfully," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-38.
    7. Kongsted, Hans Christian, 2005. "Testing the nominal-to-real transformation," Journal of Econometrics, Elsevier, vol. 124(2), pages 205-225, February.
    8. Hans Christian Kongsted, 2003. "An I(2) cointegration analysis of small-country import price determination," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 53-71, June.
    9. Johansen, Søren & Juselius, Katarina & Frydman, Roman & Goldberg, Michael, 2010. "Testing hypotheses in an I(2) model with piecewise linear trends. An analysis of the persistent long swings in the Dmk/$ rate," Journal of Econometrics, Elsevier, vol. 158(1), pages 117-129, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert Kelm, 2017. "The Purchasing Power Parity Puzzle and Imperfect Knowledge: The Case of the Polish Zloty," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 9(1), pages 1-27, March.
    2. repec:gam:jecnmx:v:5:y:2017:i:3:p:30-:d:104032 is not listed on IDEAS
    3. Katarina Juselius, 2017. "Using a Theory-Consistent CVAR Scenario to Test an Exchange Rate Model Based on Imperfect Knowledge," Econometrics, MDPI, Open Access Journal, vol. 5(3), pages 1-20, July.
    4. repec:eee:jimfin:v:83:y:2018:i:c:p:93-105 is not listed on IDEAS
    5. repec:gam:jecnmx:v:5:y:2017:i:3:p:29-:d:103932 is not listed on IDEAS

    More about this item

    Keywords

    Univariate and multivariate unit root tests; double unit roots; near I(2);

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ifweej:201421. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/iwkiede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.