IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Bootstrapping Unit Root Tests with Covariates

  • Chang, Yoosoon

    (Rice U)

  • Sickles, Robin
  • Song, Wonho

We consider the bootstrap method for the covariates augmented Dickey-Fuller (CADF) unit root test suggested in Hansen (1995) which uses related variables to improve the power of univariate unit root tests. It is shown that there are substantial power gains from including correlated covariates. The limit distribution of the CADF test, however, depends on the nuisance parameter that represents the correlation between the equation error and the covariates. Hence, inference based directly on the CADF test is not possible. To provide a valid inferential basis for the CADF test, we propose to use the bootstrap procedure to obtain critical values, and establish the asymptotic validity of the bootstrap CADF test. Simulations show that the bootstrap CADF test significantly improves the finite sample size performances of the CADF test, especially when the covariates are highly correlated with the error. Indeed, the bootstrap CADF test offers drastic power gains over the conventional ADF test. We apply our testing procedures to the extended Nelson-Plosser data set for the post-1929 samples as well as postwar annual CPI-based real exchange rates for 14 OECD countries.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ruf.rice.edu/~econ/papers/2001papers/07Chang.pdf
Download Restriction: no

Paper provided by Rice University, Department of Economics in its series Working Papers with number 2001-07.

as
in new window

Length:
Date of creation: Sep 2001
Date of revision:
Handle: RePEc:ecl:riceco:2001-07
Contact details of provider: Postal: MS-22, 6100 South Main, Houston, TX 77005-1892
Phone: (713) 527-4875
Fax: (713) 285-5278
Web page: http://www.ruf.rice.edu/~econ/papers/index.htmlEmail:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Domowitz, Ian & El-Gamal, Mahmoud A., 2001. "A consistent nonparametric test of ergodicity for time series with applications," Journal of Econometrics, Elsevier, vol. 102(2), pages 365-398, June.
  2. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
  3. Alston Flynn, N. & Boucher, Janice L., 1993. "Tests of long-run Purchasing Power Parity using alternative methodologies," Journal of Macroeconomics, Elsevier, vol. 15(1), pages 109-122.
  4. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  5. Yoosoon Chang & Joon Y. Park, 2003. "A Sieve Bootstrap For The Test Of A Unit Root," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(4), pages 379-400, 07.
  6. DeJong, David N. & Nankervis, John C. & Savin, N. E. & Whiteman, Charles H., 1992. "The power problems of unit root test in time series with autoregressive errors," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 323-343.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecl:riceco:2001-07. 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: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.