Powerful Trend Function Tests That Are Robust to Strong Serial Correlation with an Application to the Prebisch-Singer Hypothesis
In this paper we propose tests for hypotheses regarding the parameters of the deterministic trend function of a univariate time series. The tests do not require knowledge of the form of serial correlation in the data and they are robust to strong serial correlation. The data can contain a unit root and the tests still have the correct size asymptotically. The tests we analyze are standard heteroskedasticity autocorrelation (HAC) robust tests based on nonparametric kernel variance estimators. We analyze these tests using the ï¾…xed-b asymptotic framework recently proposed by Kiefer and Vogelsang (2002). This analysis allows us to analyze the power properties of the tests with regards to bandwidth and kernel choices. Our analysis shows that among popular kernels, there are speciï¾…c kernel and bandwidth choices that deliver tests with maximal power within a speciï¾…c class of tests. Based on the theoretical results, we propose a data dependent bandwidth rule that maximizes integrated power. Our recommended test is shown to have power that dominates a related test proposed by Vogelsang (1998). We apply the recommended test to the logarithm of a net barter terms of trade series and we ï¾…nd that this series has a statistically signiï¾…cant negative slope. This ï¾…nding is consistent with the well known Prebisch-Singer hypothesis.
|Date of creation:||07 Apr 2003|
|Publication status:||Published in Journal of Business & Economic Statistics, October 2005, vol. 23 no. 4, pp. 381-394|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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- Sapsford, D, 1985. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures: A Comment and Some Additional Evidence," Economic Journal, Royal Economic Society, vol. 95(379), pages 781-788, September.
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- Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005. "A New Asymptotic Theory For Heteroskedasticity-Autocorrelation Robust Tests," Econometric Theory, Cambridge University Press, vol. 21(06), pages 1130-1164, December.
- Kiefer, Nicholas M. & Vogelsang, Timothy J., 2005. "A New Asymptotic Theory for Heteroskedasticity-Autocorrelation Robust Tests," Working Papers 05-08, Cornell University, Center for Analytic Economics.
- Ardeni, Pier Giorgio & Wright, Brian, 1992. "The Prebisch-Singer Hypothesis: A Reappraisal Independent of Stationarity Hypotheses," Economic Journal, Royal Economic Society, vol. 102(413), pages 803-812, July.
- Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Peter C.B. Phillips & Victor Solo, 1989. "Asymptotics for Linear Processes," Cowles Foundation Discussion Papers 932, Cowles Foundation for Research in Economics, Yale University.
- Timothy J. Vogelsang, 1998. "Trend Function Hypothesis Testing in the Presence of Serial Correlation," Econometrica, Econometric Society, vol. 66(1), pages 123-148, January.
- Breitung, Jorg, 2002. "Nonparametric tests for unit roots and cointegration," Journal of Econometrics, Elsevier, vol. 108(2), pages 343-363, June. Full references (including those not matched with items on IDEAS)
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