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A simple test to distinguish between deterministic and stochastic trends in non-stationary time series

Author

Listed:
  • Mohamed Boutahar

    (I2M - Institut de Mathématiques de Marseille - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

For non-stationary times series, the main dificult is to identify the nature of non-stationarity. In macroeconomic and financial modelling, there are two kinds of non-stationarity. The first one is due to the presence of a deterministic trend and generally modeled by a d-order polynomial of time. The second is due to the presence of a stochastic trend which is modeled by integrating a stationary process up to a suitable order d. In this paper we propose a simple test to decide between these two kinds of trend. Simulations show that the test has a good empirical size and power. The test is finally applied to some real macroeconomic and financial datasets.

Suggested Citation

  • Mohamed Boutahar, 2024. "A simple test to distinguish between deterministic and stochastic trends in non-stationary time series," Working Papers hal-04789230, HAL.
    • Handle: RePEc:hal:wpaper:hal-04789230
    Note: View the original document on HAL open archive server: https://hal.science/hal-04789230v1
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