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Likelihood Ratio Test for Change in Persistence

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  • Skrobotov, Anton

    () (Russian Presidential Academy of National Economy and Public Administration (RANEPA))

Abstract

In this paper we propose a likelihood ratio test for a change in persistence of a time series. We consider the null hypothesis of a constant persistence I(1) and an alternative in which the series changes from a stationary regime to a unit root regime and vice versa. Both known and unknown break dates are analyzed. Moreover, we consider a modication of a lag length selection procedure which provides better size control over various data generation processes. In general, our likelihood ratio-based tests show the best nite sample properties from all persistence change tests that use the null hypothesis of a unit root throughout.

Suggested Citation

  • Skrobotov, Anton, 2015. "Likelihood Ratio Test for Change in Persistence," Published Papers skr001, Russian Presidential Academy of National Economy and Public Administration.
  • Handle: RePEc:rnp:ppaper:skr001
    as

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    File URL: ftp://w82.ranepa.ru/rnp/ppaper/skr001.pdf
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    References listed on IDEAS

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    1. Aaron L. Jackson & Scott Sumner, 2006. "Velocity Futures Markets: Does the Fed Need a Structural Model?," Economic Inquiry, Western Economic Association International, vol. 44(4), pages 716-728, October.
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    More about this item

    Keywords

    change in persistence; likelihood ratio test; unit root test; lag length selection;

    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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