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Nearly Efficient Likelihood Ratio Tests for Seasonal Unit Roots

  • Michael Jansson

    ()

    (UC Berkeley and CREATES)

  • Morten Ørregaard Nielsen

    ()

    (Queen's University and CREATES)

In an important generalization of zero frequency autoregressive unit root tests, Hylleberg, Engle, Granger, and Yoo (1990) developed regression-based tests for unit roots at the seasonal frequencies in quarterly time series. We develop likelihood ratio tests for seasonal unit roots and show that these tests are "nearly efficient" in the sense of Elliott, Rothenberg, and Stock (1996), i.e. that their asymptotic local power functions are indistinguishable from the Gaussian power envelope. Nearly efficient testing procedures for seasonal unit roots have been developed, including point optimal tests based on the Neyman-Pearson Lemma as well as regression-based tests, e.g. Rodrigues and Taylor (2007). However, both require the choice of a GLS detrending parameter, which our likelihood ratio tests do not.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1224.pdf
File Function: First version 2009
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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1224.

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Length: 22 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:qed:wpaper:1224
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