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Testing for a trend with persistent errors

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  • Elliott, Graham

Abstract

We develop new tests for the coefficient on a time trend in a regression of a variable on a constant and time trend where there is potentially strong serial correlation. This serial correlation can also include a unit root. We obtain tests under two different assumptions on the initial value for the stochastic component of the variable being examined, either this being zero asymptotically and also allowing the initial condition to be drawn from its unconditional distribution. We find that statistics perform better under the second of these assumptions, which is the more natural assumption to make.
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Suggested Citation

  • Elliott, Graham, 2020. "Testing for a trend with persistent errors," University of California at San Diego, Economics Working Paper Series qt8qb0j5s7, Department of Economics, UC San Diego.
    • Handle: RePEc:cdl:ucsdec:qt8qb0j5s7
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    Cited by:

    1. Alexander Chudik & M. Hashem Pesaran & Ron P. Smith, 2023. "Revisiting the Great Ratios Hypothesis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(5), pages 1023-1047, October.

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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