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Properties of Recursive Trend-Adjusted Unit Root Tests

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  • Paulo M. M. Rodrigues

Abstract

In this paper, we analyse the properties of recursive trend adjusted unit root tests. We show that OLS based recursive trend adjustment can produce unit root tests which are not invariant when the data is generated from a random walk with drift and investigate whether the power performance previously observed in the literature is maintained under invariant versions of the tests. A finite sample evaluation of the size and power of the invariant procedures is presented.

Suggested Citation

  • Paulo M. M. Rodrigues, 2004. "Properties of Recursive Trend-Adjusted Unit Root Tests," Economics Working Papers ECO2004/31, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2004/31
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    Cited by:

    1. Stephan Smeekes, 2013. "Detrending Bootstrap Unit Root Tests," Econometric Reviews, Taylor & Francis Journals, vol. 32(8), pages 869-891, November.
    2. Cláudia Duarte, 2015. "Covariate-augmented unit root tests with mixed-frequency data," Working Papers w201507, Banco de Portugal, Economics and Research Department.
    3. Meng, Ming & Lee, Hyejin & Cho, Myeong Hyeon & Lee, Junsoo, 2013. "Impacts of the initial observation on unit root tests using recursive demeaning and detrending procedures," Economics Letters, Elsevier, vol. 120(2), pages 195-199.
    4. Matei Demetrescu, 2010. "On the Dickey–Fuller test with White standard errors," Statistical Papers, Springer, vol. 51(1), pages 11-25, January.
    5. Paulo M. M. Rodrigues, 2013. "Recursive adjustment, unit root tests and structural breaks," Journal of Time Series Analysis, Wiley Blackwell, vol. 34(1), pages 62-82, January.
    6. Lee, Hyejin & Meng, Ming & Lee, Junsoo, 2012. "Performance of nonlinear instrumental variable unit root tests using recursive detrending methods," Economics Letters, Elsevier, vol. 117(1), pages 214-216.
    7. Rodrigues, Paulo M.M., 2006. "Properties of recursive trend-adjusted unit root tests," Economics Letters, Elsevier, vol. 91(3), pages 413-419, June.
    8. Westerlund, Joakim, 2015. "The effect of recursive detrending on panel unit root tests," Journal of Econometrics, Elsevier, vol. 185(2), pages 453-467.

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • 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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