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Bootstrap Unit Root Tests

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  • Park, Joon

    (Rice U and Seoul National U)

Abstract

We consider the bootstrap unit root tests based on finite order autoregressive integrated models driven by iid innovations, with or without deterministic time trends. A general methodology is developed to approximate asymptotic distributions for the models driven by integrated time series, and used to obtain asymptotic expansions for the Dickey-Fuller unit root tests. The second-order terms in their expansions are of stochastic orders Op(n-1/4) and Op(n-1/2), and involve functionals of Brownian motions and normal random variates. The asymptotic expansions for the bootstrap tests are also derived and compared with those of the Dickey-Fuller tests. We show in particular that the bootstrap offers asymptotic refinements for the Dickey-Fuller tests, i.e., it corrects their second-order errors. More precisely, it is shown that the critical values obtained by the bootstrap resampling are correct up to the second-order terms, and the errors in rejection probabilities are of order o(n-1/2) if the tests are based upon the bootstrap critical values. Through simulations, we investigate how effective is the bootstrap correction in small samples.

Suggested Citation

  • Park, Joon, 2002. "Bootstrap Unit Root Tests," Working Papers 2003-04, Rice University, Department of Economics.
  • Handle: RePEc:ecl:riceco:2003-04
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    References listed on IDEAS

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    1. Park, Joon Y. & Phillips, Peter C.B., 1999. "Asymptotics For Nonlinear Transformations Of Integrated Time Series," Econometric Theory, Cambridge University Press, vol. 15(3), pages 269-298, June.
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